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We live and work in exciting times - revolutionary times. Technology continues to recast the media industry.

The extraordinary advance of affordable personal digital technology and the stellar rise of social networks are both distrupting and transforming the media market making this a unique moment to be involved in the convergence sectors we focus on.

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Thursday, 29 January 2009

Knowing your customer equals greater profitability - the ITV and Sky case-study

Two of the UK's media giants, ITV and Sky, are a perfect example of how knowing your customer and tying them into a relationship can generate different levels of revenue in this sector.

ITV - a traditional commercial broadcaster reliant on advertising revenues, with a set ad inventory to offer on a range of free to air channels, with a struggling digital offer bolted on as an afterthought.

Sky - a maturing satellite broadcaster with a subscription and advertising model, run with the stated intention of continued subscription growth, regardless of the current economic decline.

ITV's revenues in 2008 were about £2bn, compared with Sky's almost £5bn. Profitability at ITV in 2008 about £120m, while Sky made over £600m.

Now ITV may keep bleating about the handcuffs of their statutory obligation to provide local content, but this is a diversion away from the real issues hitting their business. ITV is a programme-led business rather than a strong brand, with an audience it can measure but not recognise or reward. Digital platforms should enable it to start identifying loyal customers (and advertiser desired customers) and engaging them in dialogue leading to recognising and rewarding their behaviour. It's pretty obvious given their commercial performance (and share price) that they are a long way from doing this. The cancellation of Hearbeat and the Royal, and the slashing of The Bill is symptomatic of the cuts needed to survive in these tough economic conditions.

A question well worth asking, which hasn't really been discussed before, is whether ITV could actually be a very high profile media casualty of the recession. It has a massive reliance on advertiser revenue, with an audience who are increasingly less interested and engaged, and a limited number of alternative revenue streams. It has no divine right to survive, and with the proliferation of alternative channels, you have to ask what would be missed? Coronation Street - definitely, but it's a programme that people would follow to another broadcaster. FA Cup football coverage - definitely not - it's reminiscent of Matthew Lorenzo's mutilation of World Cup 94 and they should be ashamed of themselves.

Back to Sky. Subscription contracts lock in customers, which while stating the obvious, is important to note. You can reward customers when you know who they are and what they are doing. If they are unhappy, and you ask them, you can address the issues. If they do leave, you know who they are, so you can try and win them back. And above all, if the content you are providing is exclusive and premium, you should reduce your churn. It also gives you a defined audience to market new products, services and technology to - Sky+ being a great example of a major technological innovation that has altered the dynamics behind subscription retention.

Will Sky suffer in the recession? Potentially yes, but not to the same degree as its rivals. Potentially it looms large to mop up even more content as its less well off, and less well run commercial rivals have limited cash to bid for, or develop new content.

Knowing your customers, recognising and rewarding their behaviour, and understanding what makes people and keeps people loyal, must be at the heart of a successful business. Apologies if we're sounding like a broken record here, but the time is now, he who hesitates loses in 2009.

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