Do spin-off TV channels such as Channel 4's E4 or ITV's ITV2, 3 and 4 cannibalise the core channel's audience and advertising share? Of course they do - any new channel will compete with existing channels for viewers and advertisers.
But the argument for launching spin-off channels is simple. Viewing is fragmenting anyway as the choice of channels and other media proliferates, so broadcasters are better off with additional channels to keep viewers within their "family" of offerings, rather than seeing viewers migrate away from their businesses altogether.
The real question is: does the strategy of maintaining share with a family of channels actually work? Have broadcasters seen their overall share of viewing and advertising rise as a result of having a family of channels, including time-shifted services, rather than a single outlet?
Five is the channel to look at here, because it was so late to the multichannel universe, launching Five Life and Five US just a year ago, whereas ITV launched ITV2 in 1998 and Channel 4 launched E4 in January 2001. Five's family of three channels received a 6% share of viewing in September this year, compared with 5.7% for the stand-alone Five channel in the same month last year.
So Five's example demonstrates that a multichannel portfolio is better for maintaining a broadcaster's viewing share than just a single channel.
TV research company Attentional has forecast shares of viewing for all the main channels, looking ahead to digital switchover in 2012. It reckons that all the spin-off channels will increase or at least maintain their share, while all of the main channels will lose share. Once again, this suggests spin-off channels are crucial to a broadcaster's overall position in the market.
Adrian Edwards, head of operations at Attentional, says: "By the time you get to 2012, the real value of those spin-off channels will be delivered. Fragmentation of audiences is inevitable, so the best thing is to make sure that fragmentation goes to your channels rather than losing viewers altogether."
Jon Horrocks, head of TV at Walker Media, reckons potential cannibalisation of viewing is a "non-issue". "Ultimately, broadcasters are in multichannel to grow their overall audiences," he says. "It's very positive for ITV that ITV2 gets a whole load of young viewers who they are losing from ITV1. It's a bit trickier for C4. It's been a tough year on audiences. Of course there's cannibalisation (from spin-off channels), but you could argue they also allow for cross-promotion."
Yet Claire Grimmond, head of research at Channel 4, warns that broadcasters must protect a core channel's audience while building audiences for spin-off channels.
"The issue of cannibalisation is complicated," she says. "We look at it on a regular basis and things change over time."
When More4 launched in 2004, she says, C4 maintained its share, so the portfolio of channels as a whole increased its share of the market.
This year, however, C4 has lost share, down from 9.9% in October last year to 8.8% this year. "I don't think it's down to the digital channels, but to the changing nature of the way people watch TV," she says, suggesting that the number of households getting multichannel TV beyond their main TV set may be reducing C4's share of viewing as it faces yet more competition for eyeballs.
For Simon Shaps, ITV director of television, the question of launching and nurturing spin-off channels is a simple one. "The purpose of extra channels is to provide complementary audiences," he says. "We spend a lot of time making sure the positioning of those channels is right and thinking about what audiences we're trying to attract, and then commissioning and scheduling to support that.
Tailored scheduling
"We schedule across the channels to avoid programmes appealing to the same audience in the same slot on different channels. It's not a perfect science, but if we have, say, Champions League football on ITV1, it's an opportunity for more female-skewed drama on ITV3," he adds.
Ian Anders, director at Billetts, points out that the value of impacts varies considerably from ITV1 to ITV2, 3 and 4. "Every time ITV loses ratings off its main channel and gets them back on ITV2, 3 and 4, it can only make money out of that at 50p in the pound, because an ITV2 rating is sold at a 50% discount to ITV1," he says.
"That's why ITV is better at maintaining impacts than at maintaining revenue."
No wonder Shaps argues: "We should begin to change the language around these channels. In a universe of hundreds of channels, ITV2 is the sixth most popular in the UK. Some nights it outperforms terrestrial TV. It's no longer a small channel - it gets audiences of one million and up to two million for some shows."
Five's director of content, Lisa Opie, also sees the need to increase the value of advertising on spin-off channels, which are sold at a discount because of their relatively small audiences.
"For advertisers, spin-offs are a lot purer than the broader free-to-air terrestrial channels," she says. "Five Life has a pure 16 to 34-year-old profile. But it will take time to demonstrate that and we'll continue to grow and drive the value of those (digital) environments."
Five, being the smallest of the traditional terrestrial channels, has perhaps the least to lose from possible cannibalisation of its core audience. So US series Dirt made a relatively big impact on Five US, with 600,000 viewers, even compared with the main Five channel.
Opie says the Five family of channels "without doubt works harder for us" than the stand-alone Five channel. There are no immediate plans to launch a +1 version of Five, although Five Life and Five US have +1 versions. "You can say Home and Away rates less highly on our spin-off channels than it did on Five last year, but if you add all the transmissions of Home and Away together, its audience has grown by 14% year on year," she adds.
Shaps is also pleased with +1 versions of ITV2, 3 and 4, which, he says, each draw audiences of up to 25,000, watching programmes an hour later than first scheduled. "People to some extent like to manage their viewing, as with PVRs, and for us it's about ensuring we increase the reach of our channels," he says. But there are no plans to launch an ITV1 +1 channel, despite suggestions to the contrary earlier this year by executive chairman Michael Grade.
Billetts' Anders says broadcasters should keep a watchful eye on the level of impacts their +1 channels get, questioning whether it matters if viewers watch a +1 channel rather than the core terrestrial channel, because the same ads are broadcast with the same content.
But Richard Woolfe, controller of Sky One, Two and Three, is unconcerned by possible cannibalisation, for instance by on-demand viewing. "People who think of this as one or t'other are living in the dark ages. We see on-demand, multi-start, Sky+ and HD as different ways of adding value for our customers," he says.
One effect of the launch of so many of these time-shift channels is the possible further erosion of ITV's ad revenue as its audience declines, because of the contract rights renewal mechanism (CRR), which allows advertisers to spend less with ITV as impacts fall.
Chris Hayward, head of investment at ZenithOptimedia, speculates that ITV hasn't launched an ITV1 +1 channel because it doesn't want to jeopardise the "very strong" ITV2 and 3 brands. "It's conjecture, but they are probably focused on establishing those brands and making sure they're market leaders," he moots.
As for CRR not applying to ITV2, 3 and 4, Hayward says: "During the life of CRR, ITV has understood the strength of its digital offering and has learned how to optimise that strength in the course of negotiations."
This diplomatically suggests ITV is ratcheting up the cost of advertising on ITV2, 3 and 4 because the value of ITV1 has fallen in the recent past in line with its viewing figures.
Bargaining position
"Having a +1 channel gives someone like Channel 4 a presence in the digital market that extends the potential audience. I expect C4 would want to capitalise on that in future and make sure there's a revenue gain. It puts it in a stronger bargaining position in terms of revenue," adds Hayward.
"I don't think the audiences are particularly large (for +1 channels) and there's no sign of any cannibalisation against the terrestrial audience, but it seems the audiences for the +1 C4 channels are younger and more upmarket than even C4's young, upmarket audience.
"One of the things that never ceases to amaze me is people's appetite for TV. The +1 audiences are not huge - the biggest I've seen is around 500,000 - but it's still significant. Audiences of four or five million are reasonably significant on C4, so extending that by 10% is a good revenue opportunity."
Whichever way you look at it, a portfolio of channels has to be a better business proposition in a dynamic market than a single offering.