Focus: RTE’s flawed vision

But licence payers looking for a Hollywood ending won’t find much comfort in the bigger picture.

“THE one constant that RTE faces in the future is change,” says Cathal Goan, the station’s director-general. He could have added that another constant facing the public is an annual hike in licence fees.

A government under fire for introducing what its critics like to call “stealth taxes” has caved in to RTE’s relentless lobbying for more cash.

The broadcaster secured a €2 increase in January and, even though it is predicting that advertising revenues will be stronger this year, will seek a further increase when it next sits down with the government.

As far as the organisation’s senior directors are concerned licence fees are now an automatic entitlement. Paddy Wright, RTE’s chairman, gained his business experience at the Jefferson Smurfit Group, a hotbed of private sector enterprise, but seems at home in the land of state subsidies.

“Every year we will sit down with the department,” says Wright. “It means we don’t have to go with a begging bowl year in and year out. Unfortunately we didn’t do it for a couple of years and that’s one of the reasons why we got into the (financial) mess in the first place.”

This free pot of money can lead to confused thinking. Like CIE, RTE boasts a subvention-induced “profit”. The reality is that last year’s surplus was only made possible thanks to the hefty €43 increase in the licence fee. This brought the annual tax to €150, injecting an extra €43.4m to the bottom line. At €157m, licence fee income accounted for slightly more than half the broadcaster’s total revenue of €312m last year.

That explains the broad smiles in evidence at Montrose last week. RTE’s commercial performance, however, is no laughing matter. In 1999 commercial income was €164.8m; last year the figure was €155m. Over the same period the licence fee has doubled, adding a massive €75m to revenue.

The public might not like it and, as with all taxes, retains the right to grumble as it hands over its cash. In an attempt to ease the pain RTE’s bosses are bending over backwards to assure the public that its money is being well spent — and within its public service ambit. It pumped €16m of the extra licence revenue directly into domestic programming and is claiming increased market share as a result.

“We want to tell a good news story about the fact that RTE has effected significant change and achieved a turnaround in a remarkably short period of time,” says Goan. “Our programming has enjoyed the benefit of this. We are not apologising for having a licence fee because we believe we spend it well and the viewer gets value for money.”

Goan’s definition of turnaround will strike some people as strange. Not only has it been boosted by hitting the public for more money but even the job cuts of which the station made much as it appealed to the government for increased funding seem to have been a mirage.

Five years ago RTE’s headcount was 2,186; last year it was 2,025. The station says the 2003 number is explained by the need to put contractors on staff but the bottom line is that numbers employed have fallen by just 7.3% in five years. Retirements alone would more than account for that figure.

The licence fee distorts more than RTE’s accounts. Competitors and advertising agencies have long argued that RTE’s hybrid nature also distorts the market. Shielded from competitive pressures by its massive licence fee, the broadcaster is able to drive down advertising income across the board, making it difficult for purely commercial ventures to operate.

“The fact that RTE is dual-funded means there isn’t the same commercial pressure on it,” says Pat Donnelly, the chief executive of AIM Carat. “The result is that airtime in Ireland is extraordinarily cheap — around 30% below the UK.”

That is a view shared by Willie O’Reilly, the chief executive of Today FM. “RTE openly pitches on the basis of being able to undercut its competitors and the licence fee goes to the heart of this,” he says. “It shouldn’t be that way but the licence fee income allows them flog off time more cheaply and drags down the whole market.”

Rock-bottom rates, however, are no guarantee of success. At €132m, advertising revenues last year fell €2m short of management’s €134m projection. Moreover, the final figure was also €3.7m less than 2002 and the revenue from this source has fallen consistently as the broadcaster faces increasingly tough competition.

In an attempt to become more transparent RTE has broken down the performance of its various activities. The state-owned broadcaster now has six distinct divisions with separate accounting for each: television, radio, news, performing groups, network and publishing.

News and current affairs on television and radio take the lion’s share of the revenues, costing €60.2m last year. With the exception of 2FM and the publishing arm (represented in the main by the RTE Guide), all other parts of the business lost money — even with the additional licence fee revenues.

With nearly €160m in free money coming its way every year it could be argued there is little urgency to turn those losses into surpluses.

“We are a not-for-profit organisation: we exist to serve the audience and there is a cost associated with this,” says Goan. “We compete for commercial revenue but we also state quite baldly that there is a cost that commercial revenue cannot meet and that’s where the licence fee is deployed.”

It is also difficult to assess whether RTE is providing value for money.

It paid €23.1m for imports compared with €213.5m for Irish-produced programmes. It would appear that the broadcaster derives maximum value from the imports as they accounted for 44% of peak-time television in 2003.

RTE appears to have won the battle for inflation-linked licence fee increases but it has a difficult task ahead to maintain market share in both television and radio.

Irish viewers currently have access to 14 television stations and analysts forecast this figure could increase exponentially as technology allows for cheaper broadcasting.

TV3’s market share is now about 11% and the station is forecasting its first profit this year. Other broadcasters such as Sky — the satellite station in which News International, owner of The Sunday Times, has a 35.4% stake — Nickelodeon, MTV, UTV and Channel 4 are also nipping at RTE’s heels. However, so far RTE has largely managed to weather the influx of foreign television channels and the rash of local radio stations that have sprung up around the country.

Paul Moran, the director of communications company Owens DDB, says that despite the increasing fragmentation of the market the experience in other markets, notably America, shows viewers tend to drift back to the more established operators.

“Viewing figures show that home-produced content is perennially popular: look at the top 20 programmes and shows like Fair City, the All-Ireland finals and The Late Late Show are always up there,” he says.

IN the case of radio, local stations are nibbling away at market share. Tim Fenn, the managing director of FM104, says RTE One will always be high on the advertising food chain but its audience is ageing. In the case of 2FM, which turned a profit without a subvention, he said this would do its value no harm in the event of it being offloaded, as has been mooted.

Goan says management has concentrated its attention on the increased competition faced by the radio stations and promised an intensive marketing campaign in the near future.

He is less comfortable when asked whether or not the performing groups — mainly the two orchestras — should continue to be under RTE’s aegis. A subvention of €13.4m last year equates to an average subsidy of more than €63,000 per orchestra member.

RTE is available on satellite and cable but it does not own its own digital transmission network. This has led to inevitable concerns that it could be held to ransom in the future by the carriers. It is something Goan says management is keenly aware of and is trying to address in the most cost-effective way possible. “You must be where the audience is and a key question is how people will migrate to digital. The delivery mechanisms are changing — broadband would have been ruled out a year ago but not now.

“I think everyone rushing to conclusions about the future shape of the market is a bit premature. What we do know is that the landscape is changing all the time and we are studying it very closely.”

A briefing paper presented to the government in January on the future of digital terrestrial television said the government would have to foot the bill for the multi-million-euro service because private operators would not be interested as it would be free to Irish users.

Although advertising has returned to health over the past six months and the prognosis is positive for the foreseeable future, the financial challenges keep on coming.

RTE and TV3 are bracing themselves for a final report from the Broadcasting Commission of Ireland that may include draconian measures to ban broadcasters from carrying certain commercials targeted at children.

This, in turn, will lead to loss of revenue as multinationals shy away from the cost of modifying their ads for what is a relatively small market. It is estimated RTE will lose at least €2m a year if the code is enacted as presently envisaged. The new strictures will only apply to RTE and TV3.

If the nanny state decides alcohol advertising exerts a similarly malign influence, times could become even tougher but that won’t bother the mandarins at Montrose. With licence fee increases in the pipeline it is the viewing public who will be expected to pick up the slack.