One response to the growth of the satellite and cable households has been for terrestrial broadcasters to launch their own digital channels. These channels are beginning to absorb significant fractions of the total programming budget and in this report we look at the implications for the parent broadcasters. We examine E4, Channel 4’s main satellite entertainment channel, showing that it is likely to remain a drain on the parent for many years to come. Rather than ‘strengthening the brand’ of terrestrial broadcasters, which is the reason normally given for diversification into satellite channels, our research shows that E4 and other services do nothing for the parent company and divert programming expenditure that would otherwise be usefully spent on the terrestrial service.

This note discusses the likely obstacles to a successful launch of H3G UK, the most aggressive 3G new entrant in Europe. Our main points:

What does this mean for the media industry? Does the increasing power of media buyers mean further downward pressure on rate cards? We suspect that many of the effects have already been felt, particularly in the European and US TV businesses. In fact, we see a different issue emerging: the explosion in advertising inventory in the last few years, which has resulted in a worldwide glut. This has coincided with what we think may be a permanent reduction in the absolute number of advertisers. As a result, media buyers will continue to obtain better terms, whether in buying as part of a large group or not, but media price deflation may be a feature of the industry for many years to come.