(Rewrites, adds detail.)
By Simon Zekaria and Ian Walker
LONDON--The U.K.'s communications regulator has asked the
British Broadcasting Corp. and other British public-service
broadcasters to better adapt their business to suit rapid growth in
demand for online content, amid competition from rival operators
and streaming platforms like Netflix Inc. (NFLX) and Amazon.com
Inc.'s (AMZN) Prime service.
In its periodic review of the sector released on Thursday, the
Office of Communications, known as Ofcom, said over-the-air
broadcasters have to maximize commercial revenues and become more
efficient to avoid difficult choices about which content and
services they can finance.
"More people are watching online or on demand, and this presents
challenges as well as opportunities for public service
broadcasters," said Ofcom Chief Executive Sharon White. "They must
continue to find new ways of connecting with audiences."
Public-service broadcasters attract most television viewing
overall, but only half of 16 to 24 year-olds watch live TV, Ofcom
said. It also said, for 16 to 34 year-olds, the Internet is
replacing the TV as their main source for news and sport.
The regulator, which said rules governing access to
public-service content are outdated and need to be reformed, also
said so-called re-transmission fees--or the fees some public
broadcasters want from pay-TV operators to carry their
channels--could provide additional funding, but regulation over the
issue could be "complicated and lengthy".
ITV is one broadcaster that has called for the introduction of
the fees in the U.K., which are already present in the U.S, but
analysts said Ofcom's statement is a blow to the company's
strategic ambitions. ITV wasn't immediately available for
comment.
"This will be disappointing for ITV and investors that had high
hopes of this coming through," said Citi analyst Thomas
Singlehurst.
At 0907 GMT, ITV's shares had fallen 1% to 264 pence, valuing
the company at 10.8 billion pounds ($16.9 billion).
As well as the trend to online viewing, the U.K.'s public and
commercial broadcasting sectors have been shaken up as telephony,
broadband Internet and pay-TV operators join a race to consolidate
and bundle services and build customer loyalty and revenue in an
increasingly competitive market. Key companies joining this space
are BT Group PLC (BT.A.LN), Sky PLC ( SKY.LN) and Liberty Global
PLC (LBTYA).
And streaming platforms like U.S.-based Netflix are also
competing for viewers.
"It is difficult at this stage to predict the full impact of the
new international players and platforms that are entering the U.K.
market," Ofcom said. "The market is evolving quickly."
Ofcom is required to report periodically on the delivery of
public service content with a view to maintaining and strengthening
the public service broadcasting industry.
Write to Simon Zekaria at simon.zekaria@wsj.com and Ian Walker
at ian.walker@wsj.com
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