CEO Review

CHIEF EXECUTIVE'S REVIEW

CEO Review

 

RECORD RETURNS

2014/15 has been a significant year of investment and transformation for BBC Worldwide. We began to deliver our strategy, first set out in October 2013, of building our supply of high quality content for clients and our own services alike, developing stronger global brands and accelerating digital innovation. All this puts us in a better position to deliver sustainable financial returns to the BBC and generate even better value for UK licence fee payers, both this year and in the future.

Overall, we have had a good year, balancing the delivery of solid financial results - including significant growth in returns to the BBC, our primary financial priority - with investment to transform the business for a more competitive global marketplace. Notably, our new venture with AMCN has significantly enhanced future prospects for our BBC AMERICA channel while also enabling us to boost shareholder returns for the year.

Beyond the AMCN deal, we continued to take steps to drive innovation and underpin the sustainability of our operations. This is essential work in the context of a global media market undergoing structural and systemic changes, some of which constrain our trading and outlook in certain areas. This has led to initiatives such as growing investment with the independent sector, both in programming and in selective equity investments to support our long-term content supply. We launched our new strengthened BBC genre channel brands into lead markets during the year, and delivered significant innovation, such as the BBC Earth platform on BBC.com and BBC.co.uk. We also accelerated partnership deals on core brands such as CBeebies, with a successful launch of CBeebies Land at Alton Towers as well as our planned roll-out of CBeebies English language learning centres in China.

Within the company, we have focused hard on the culture of our business, encouraging new ways of working. These are delivering world-class processes with proprietary programmes such as Adding Value across our sales function, which maximises content revenues across all windows and channels, Brand Labs, our marketing and brands best practice hub, and new procurement practices. We have also prioritised the attraction and development of the best global talent in our industry.

Finally, across every element of our business, we have continued to focus on nurturing the UK creative industries through initiatives like BBC Worldwide Labs, our start-up programme, showcasing UK creativity overseas and supporting the independent production sector.

Returns to licence fee payers

Our commitment to a high level of content investment, coupled with a solid operating performance and the proceeds of our equity partnership with AMCN, allowed us to increase our returns to the BBC by 30.3% to a record £226.5m. As detailed by Tony Hall in the Chairman's Statement, this funding also reflects BBC Worldwide's increased contribution to BBC commissioning spend, both from in-house production teams and British indies, which enhances the hours and creative ambition from key titles that UK audiences can enjoy. This year alone we have supported the BBC in-house production team as well as over 250 independent producers in delivering a number of notable titles such as The Honourable Woman, Wolf Hall, Life Story and Human Universe.

The year's results

While headline sales and profit both declined due to the AMCN transaction and to currency movements, adjusted for these effects, our operating performance was broadly flat year on year.

Headline sales of £1,001.8m were down 3.9% (2013/14: £1,042.3m), reflecting the absence of BBC AMERICA revenue for most of the second half of the year. However, our revenue performance on ongoing operations was up 0.4% to £948.1m (2013/14: £944.5m), helped in particular by continuing growth from digital sales, channel advertising revenue and UKTV. In North America, digital sales exceeded linear TV sales for the first time, while strategic partnerships brought a sales uplift in Australia and New Zealand. Digital investment in the UK supported successes for our ecommerce offering, BBC Shop, while careful management of our DVD slate, coupled with targeted marketing support, somewhat offset ongoing pressure from the industry-wide decline in the category. Meanwhile, difficult trading conditions in Russia, coupled with economic sanctions, impacted our performance in that market. Currency movements reduced sales by £19.5m in aggregate.

Headline profit of £138.6m (2013/14: £157.4m) was 11.9% down on the previous year, again including the impact of the AMCN venture. Excluding this effect, headline profit on ongoing operations recorded growth of 4.1%, at £127.2m (2013/14: £122.2m), including the benefit of just over five months of BBC AMERICA's contribution as an associate. Foreign exchange movements hit headline profit by £3.2m in the year.

Strategic focus

We made significant progress in our core areas of strategic focus: high quality content, delivering stronger brands and increased digital capabilities.

Investing in the highest quality content

Investing in premium content continued to be the cornerstone of the business, and we were proud to deliver and represent a rich mix of bold and inspiring titles from across drama - accounting for almost half our total investment - as well as natural history, factual entertainment, comedy, music and children's. Our top-selling shows of the year included Doctor Who, Top Gear, Orphan Black, Life Story, The Musketeers, Atlantis, Call the Midwife, Ripper Street, Sherlock and The Honourable Woman - a range of titles that speaks to the breadth of appetite for British content from global audiences. Doctor Who S8 was licensed to 189 territories in the year. Content investment of £180.5m (2013/14: £200.6m) declined due to our venture with AMCN, which means we no longer report BBC AMERICA's content spend - a material element in our overall investment - as well as some inevitable variability in the timing of commissioning decisions for new content. We still delivered an increase in investment in BBC-commissioned content to £94.4m, up 6.2% (2013/14: £88.9m). This contributed to production of the much anticipated dramas War and Peace, Dickensian and SS-GB, all of which will air in 2016.

Partnerships such as that with AMCN for BBC AMERICA are imperative for ensuring we can sustain long-term investment in premium content, and grow both the future reach and profile of BBC AMERICA, the BBC and the titles we represent. The partnership also enables us jointly to increase the volume of intelligent drama, loved by fans both of AMCN (which airs the US record rating drama series, The Walking Dead) and of the BBC, through a shared agreement to co-develop future titles, which will complement those we have already co-produced, including Golden Globe winning series Top of the Lake and The Honourable Woman.

In the coming year we intend to build on these successes, keep investing in the highest quality British programmes, deepen our relationships with the UK creative sector and look forward to distributing a wealth of exceptional programmes, such as the final instalment of Wallander, as well as forthcoming natural history landmark The Hunt, and the much anticipated Sherlock special and subsequent fourth series, to audiences across the world.

Beyond programmes, this year we made some strategic investments into developing independent businesses such as Lookout Point and Curve Media. This signals our desire to partner with those producing and making the highest quality UK content. Overseas, we are focused on building our formats business and growing our production capabilities in core markets so that we can exploit outstanding UK creative work. The strength of our French production arm, for example, is set out on the Global Markets section.

Strengthening our global brands

In 2013/14 we overhauled our channel brands and began investing in pilot markets to support the launch of new channel brands such as BBC First, BBC Brit and BBC Earth. These brands are concentrated on genres where we have global strength, and the potential to build strong consumer franchises in a more competitive marketplace.

We have been encouraged by the initial audience reaction to both the linear TV launches of BBC Earth and BBC Brit in Poland and the debut of BBC First on the Foxtel subscription platform in Australia.

In the year ahead we will continue to roll-out the BBC genre brands across multiple platforms. Linear offerings of BBC Brit and BBC Earth launched post year end in the Nordics in April and BBC First's linear debut outside Australia came in the Netherlands in May. Beyond linear, we will continue to build our suite of immersive experiences for audiences of all ages, which this year included a Top Gear Track Experience at the show's iconic track at Dunsfold.

Digital innovation

Within the year BBC.com celebrated reaching 100.8m unique browsers for the first time in January and generated 1.3bn page views across all platforms for the month of March. Our feature sections played a key role in this, driving audiences to 8.3m, up 76.6% (2013/14: 4.7m). BBC Earth's launches on BBC.com and BBC.co.uk in September and October respectively made it the first of our genre brands to debut online. It offers fans of the natural world a rich mix of short-form content and editorial insight and complements the linear transmission of titles such as Life Story. It also offers fans an opportunity to share inspiring content of the natural world through the EarthCapture app, launched in March in partnership with Seenit, one of this year's BBC Worldwide Labs start-up companies. Within its first few weeks, app users had submitted over 1,200 pieces of content: a mix of video and imagery. Our finance and science and technology sections, BBC Capital and BBC Future, achieved record numbers of unique browsers at year end, at 2.5m and 3.9m respectively, up on the previous year (2013/14: Capital 1.6m, Future 2.5m). Our YouTube network has continued to engage fans of our content, with total views increasing in the year by 53.5% to 809m (2013/14: 527m).

In 2014/15 we commenced our journey into the transactional landscape, with the development and initial testing of BBC Store as well as early stage development of our international plans for direct-to-consumer services. BBC Store will be the first of these ambitions to be realised, in autumn 2015. The service will be available to UK audiences, and will offer the option to buy and keep a wealth of titles, including a number of well-loved classics that to date have not been available commercially.

Looking forward, our international digital plans are focused on the roll-out of TV Everywhere services in collaboration with our partners as well as evaluating over the top pilots in one or two lead markets.

Building a world-class media company

Last year we also tasked ourselves with building on our strong company culture, ensuring all our employees have access to the best training and opportunities to develop their careers. We have accomplished a great deal in this area, as you can read in the Strategy. This work has led to strong staff engagement scores, which place us at the upper end of benchmarks, although we hope to keep setting standards in this area.

Looking to the future

As we look to the year ahead, we remain very focused on effective execution of our strategy while remaining agile enough to exploit opportunities as they arise. In the rapidly changing market, this will require us to balance the need to invest and innovate with our desire to achieve consistent financial returns. This will be challenging, as traditional markets face upheaval, but our outstanding content, the quality of our brands and the strength of our team puts us in a good place to deliver success and build a world-leading creative media business.

Tim Davie
Chief Executive, BBC Worldwide and Director, Global