U.K. Watchdog: Adapt Public-Service Broadcasting to Internet -- Update

(Rewrites, adds detail.)

By Simon Zekaria and Ian Walker

LONDON--The U.K.'s communications regulator has asked the British Broadcasting Corp. and other British public-service broadcasters to better adapt their business to suit rapid growth in demand for online content, amid competition from rival operators and streaming platforms like Netflix Inc. (NFLX) and Amazon.com Inc.'s (AMZN) Prime service.

In its periodic review of the sector released on Thursday, the Office of Communications, known as Ofcom, said over-the-air broadcasters have to maximize commercial revenues and become more efficient to avoid difficult choices about which content and services they can finance.

"More people are watching online or on demand, and this presents challenges as well as opportunities for public service broadcasters," said Ofcom Chief Executive Sharon White. "They must continue to find new ways of connecting with audiences."

Public-service broadcasters attract most television viewing overall, but only half of 16 to 24 year-olds watch live TV, Ofcom said. It also said, for 16 to 34 year-olds, the Internet is replacing the TV as their main source for news and sport.

The regulator, which said rules governing access to public-service content are outdated and need to be reformed, also said so-called re-transmission fees--or the fees some public broadcasters want from pay-TV operators to carry their channels--could provide additional funding, but regulation over the issue could be "complicated and lengthy".

ITV is one broadcaster that has called for the introduction of the fees in the U.K., which are already present in the U.S, but analysts said Ofcom's statement is a blow to the company's strategic ambitions. ITV wasn't immediately available for comment.

"This will be disappointing for ITV and investors that had high hopes of this coming through," said Citi analyst Thomas Singlehurst.

At 0907 GMT, ITV's shares had fallen 1% to 264 pence, valuing the company at 10.8 billion pounds ($16.9 billion).

As well as the trend to online viewing, the U.K.'s public and commercial broadcasting sectors have been shaken up as telephony, broadband Internet and pay-TV operators join a race to consolidate and bundle services and build customer loyalty and revenue in an increasingly competitive market. Key companies joining this space are BT Group PLC (BT.A.LN), Sky PLC ( SKY.LN) and Liberty Global PLC (LBTYA).

And streaming platforms like U.S.-based Netflix are also competing for viewers.

"It is difficult at this stage to predict the full impact of the new international players and platforms that are entering the U.K. market," Ofcom said. "The market is evolving quickly."

Ofcom is required to report periodically on the delivery of public service content with a view to maintaining and strengthening the public service broadcasting industry.

Write to Simon Zekaria at [e-mail] and Ian Walker at [e-mail]

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