April Fool's day this year was no joke for children's television revenues, as Ofcom's rules on junk-food advertising came into force.
The media watchdog, faced with mounting political pressure to take a tough stance on the modern-day epidemic of childhood obesity, set limits on children's exposure to high fat, salt or sugar (HFSS) foods - and the effect on ad revenues on kids' television channels has been devastating.
Ofcom's forecast, when it weighed up the arguments for introducing the measures, was that the impact on commercial public service broadcasters would be "negligible": it predicted that commercial PSBs would take a 0.3% hit in ad revenues and that multichannel broadcasters would lose 3% to 5% of their ad business.
However, Nielsen Media Research figures show that ad spend on children's programming dropped from £176m in 2005, when the proposals for the HFSS ad ban were first aired, to £121m in 2006 - a combined drop of 31%, or a £55m-shaped hole in the market. Five lost £1m in ad revenues in the year to October alone.
Kelly Williams, sales director at Five, who was "surprised" that Ofcom decided on a full ban, says: "Although there has been a gradual decline in advertising by HFSS brands over the past couple of years, which has softened the impact, we have still taken the biggest hit this year - and that does have an impact on profitability."
Nickelodeon suffered the largest shock in 2005, when some of the biggest-spending HFSS brands started to self-regulate in anticipation of the ruling. However, Bobi Carley, director of kids at Nickelodeon sales house Viacom Brand Solutions, predicts a "final big hit" in 2009, when the smaller-spending brands will finally drop off and HFSS advertising will be 100% extinct from kids' TV (see box, right).
She says: "The junk-food ban was a disappointing decision. It was really tough for dedicated kids' channels and it means that there is a missed opportunity to educate and inform. We wanted to help children understand the importance of healthy eating, but we now have less money to spend on positive messaging."
Running in parallel to the debates over HFSS advertising has been a decline in investment in original programming. According to Ofcom, investment in first-run original programming by ITV1, GMTV, Channel 4 and Five has halved in real terms since 1998 and overall spend across all broadcasters fell from an estimated £127m in 1998 to £109m in 2006.
However, opinion is divided as to whether the dwindling spend on new kids' programmes preceded, or was a result of, the HFSS advertising rules. James Thickett, director of market research at Ofcom and project director of October's The Future of Children's Television Programming discussion paper, says: "I deny that there is a correlation between the new rules on HFSS advertising and the decline in investment in children's programming."
Pointing to the fact that ITV "has not commissioned a new children's programme for two years", Thickett adds: "There has been a decline in investment (by the commercial PSBs) for the past seven years. This is because increased competition and the fragmentation of audiences across multichannel platforms has made it harder to attract large audiences to make kids' TV economically viable."
Hamish Pringle, director general of the Institute of Practitioners in Advertising, agrees that the "causal link" between junk-food advertising [and broadcasters' falling revenues began in the 1990s, before the ban was enforced. Nevertheless, he describes the HFSS ad ban as a "significant milestone" in the declining health of children's TV over the past decade.
He says: "The junk-food advertising ban has been a significant nail in the coffin. We are on a slippery slope of seven years' standing and someone must put a stop to it. Half the media in the UK is paid for by advertising - if there is no market for children's advertising, there is no market for children's programming."
Simon Poole, sales and marketing director at GMTV, agrees that the HFSS ban has had a negative effect on children's programming. He says: "If there is less advertising money, there is less opportunity to invest in programming and therefore fewer commercial impacts. The whole kids' industry is affected: manufacturers feel the effect because they cannot get their products seen by as many people."
GMTV had to pull 100% of HFSS ads from its GMTV1 weekend shows from 1 April, since Ofcom decided that GMTV1 was not a pure kids' channel - a ruling that Poole describes as "unfair". His strategy has been to target non-food advertisers such as toy and games retailers, however this approach pushes more advertisers to the four-month period in the run-up to Christmas. According to Nickelodeon's Carley, 50% of ad spend on kids' TV is weighted between September and December.
ITV, which has a 75% stake in GMTV and took back the CITV sales business from GMTV in October, has the most chequered history of the commercial PSBs in terms of children's programming. The broadcaster reduced its amount of first-run, original programmes from 362 hours in 1998 to 146 hours in 2006 and approached Ofcom last year to reduce its kids' output "significantly" from the eight hours a week delivered in 2005 - a proposal that Ofcom deemed "not appropriate".
However, ITV has since revised its plans to broadcast 500 hours of kids' programmes on ITV1 and GMTV over 2007, including pre-school, drama and factual content, and has stated that a "substantial proportion" will be produced in-house. By comparison, Five broadcasts 21 hours of kids' programming each week under the Milkshake brand (for pre-school kids and six to nine-year-olds) and originates 85% of its programming.
Meanwhile, the multichannel broadcasters are plugging the revenue gap by thinking more creatively about how to target young people. Turner Broadcasting, which owns the Cartoon Network, CN2, Boomerang and Cartoonito channels, has concentrated on increasing its brand count so that, as Simon Cox, vice-president of Turner Media Innovations, puts it: "We don't have all our eggs in one basket."
Cox says: "We have worked on expanding the portfolio of our business and this has helped us: games brands are a major growth area."
Turner has also invested in sales and consumer insight data to help clients plan their multichannel campaigns, sells licensed products online, and has increased its original programme quota through its Cartoon Network Development Studio, launched in Q1 this year.
Nickelodeon, which estimates that it has lost "several million" in ad revenues since 2005, has nevertheless performed well over 2007, increasing its spend on programming and on educational initiatives such as the Nicktrition campaign. Carley says: "The HFSS ad ban is a massive hit, but we are looking to fill the hole by talking to brands about alternative forms of advertising. We have always promoted a healthy lifestyle and this activity continues, even though we have less money to spend."
Jetix, which has reduced its HFSS activity by 75% since 2003, has benefited from Ofcom's phased period for dedicated kids' broadcasters, reporting "no shortfalls in ad revenues". Michael Ghosh, director of ad sales, Jetix Europe, says: "Sponsorship, online and interactive have been key revenue drivers over the past fiscal year and these have mitigated any shortfall on the back of this year's challenges."
Integrated activity at Jetix increased 70% over the year to September 2007 and online ad revenues were up 25% over the same period.
Ofcom, which is due to review the HFSS ad ban in autumn 2008, is now under pressure from the Department of Health to extend the ban to adult TV shows with large kids' audiences such as The X Factor, following publication of October's Foresight report, which warned that 25% of children will be clinically obese by 2050.
But in a market where audience share is declining across the board, the last thing the TV industry needs is further regulation. Ghosh says: "We accept Ofcom's stance on kids' obesity, but there has been little government investment in promoting healthy eating. The Central Office of Information should put money into positive messaging to stem the losses."
CHILDREN'S TELEVISION AND THE HFSS AD BAN: THE FACTS
- As of 1 April 2007, HFSS ads are not permitted in or around programmes made for children (including pre-school children), or in or around programmes that are likely to be of particular appeal to children aged four to nine
- From 1 January 2008, HFSS ads will not be permitted in or around programmes made for children (including pre-school children), or in or around programmes that are likely to be of particular appeal to children aged four to 15
- Dedicated children's channels are allowed a phase-in period. HFSS advertising had to reduce to 75% of 2005 levels by 1 April 2007, and to 50% of 2005 levels by 1 January 2008. All HFSS ads must be removed from children's programming by 1 January 2009
- The number of dedicated children's channels in the UK increased from six to 25 between 1998 and 2007. In 2006, 82% of children's viewing was to dedicated children's channels and just 18% to the terrestrial public service broadcasters
- Just 17% of the 113,000 hours (an all-time high) of children's programming broadcast in 2006 originated in the UK
- There have been no specific requirements mandating PSBs' levels of children's programming since the Communications Act of 2003