I thank the Chairman and committee members and thank them for inviting me here today and in particular for the committee's interest in the TV3 Group's views on these matters. My name is Pat Kiely and I am the managing director of TV3. I am joined by Aine Ni Chaoindealbhain, director of operations, and Bill Malone, director of programming. I am also joined by some of my colleagues from across the organisation, some of whom will be referenced in my submission.
I want to start with a background to the TV3 story. I will also cover the challenges faced by broadcasters across the board in a rapidly changing media world, the dire need for more local efficiencies in this sector and the great potential for a thriving television industry in Ireland. Most importantly, our submission today outlines our belief that the future of public service broadcasting is best served by improving efficiencies in the current model and creating an environment that encourages investment. There is a way to secure a bright future for RTE and the wider broadcasting sector but increasing RTE's funding is not the way.
To begin, let me talk about TV3, Ireland's commercial public service broadcaster. As I have been with the business from start-up in 1998, I am probably best placed to tell the TV3 story. The TV3 story is an important one as within it, we believe, lie lessons which could help inform future broadcasting policy. Over the past 19 years, TV3 has developed an extraordinary ability not only to survive, but to thrive in a more challenging market. Having been written off many times, TV3's resilience is a credit to a hard working, fast moving and efficiently run business. TV3 Group now operates three linear free-to-air channels - TV3, 3e, and Be3 - and a digital platform, 3Player. We employ over 300 staff and this year will spend over €60 million, making a marginal profit for the second year in a row, unique among other television broadcasters in Ireland. Like all of our media colleagues, it was a battle for survival through the recession but we cut our cloth, continued to honour our licence commitments, maintained viewership and retained advertising support.
The acquisition of TV3 by Virgin Media in late 2015 ultimately ensured the survival of the group, and Virgin Media's subsequent acquisition of UTV Ireland in 2016 rescued that licence and saved jobs. This new broadcasting group has provided TV3 with a new lease of life and with more economic certainty. This is a topic I am sure will be covered by Tony Hanway, Virgin Media Ireland CEO, when he speaks to the committee later.
TV3's more recent performance, as will have been noted by the committee, has been driven through a growing emphasis on home-produced programming, with more than 50% of the channel's schedule now produced in Ireland. This is double our public service licence requirement of 25% and matches RTE's percentage of home-produced programming, an impressive if unreported fact. Virgin Media and parent Liberty Global have backed this strategy of investment in Irish content and are backing Ireland. They have put their money where their mouth is and, despite market uncertainty, Virgin Media has invested over €5 million in capital expenditure since acquisition to upgrade our studios and infrastructure.
In an increasingly competitive media landscape, I am hugely excited about the growing momentum around our channels and the future potential to build on this as part of Virgin Media. As long as our investors can see that Ireland is a place to do business, I am confident this relationship will drive the sector overall. However, artificially propping up the inefficiencies of the current funding model will scare off all potential inward investment. As part of our Irish content strategy, TV3 has made huge progress in recent years in acting as a counterweight to the dominance of RTE and has become a more significant player in news and current affairs. Without TV3, viewers would be reliant on State-funded television news, which is not ideal for a functioning democracy and a blow to plurality.
We recently launched the 3News Ireland hub, led by our head of news, Mick McCaffrey, who is with us today. 3News is now Ireland's most technologically advanced news studio. TV3 Group's main news bulletins at 12.30 p.m., 5.30 p.m., 7 p.m. and 10 p.m. are offering independent news options while competing impressively against the State broadcaster, both in terms of audience and hours of output. We are also developing new-to-television talent, including TV3's new political correspondent, Gavan Reilly, who, as always, is also onsite today. When we add in TV3 providing Ireland's only breakfast news, seven days a week, and our significantly growing current affairs output, I believe we have well and truly earned our stripes as a credible alternative voice.
This is how a properly functioning broadcasting environment should work. RTE should not be given more funding to, in effect, ensure its ongoing dominance over commercial competition. TV3's challenge is to complement this key content of news and current affairs with entertainment, documentaries, drama and sport, the staples of a mainstream free-to-air broadcaster. A key point is that our focus in these areas is to provide Irish viewers with unique moments that only an Irish broadcaster can provide. "Red Rock" and our new drama "Darklands" are great examples, as is our "True Lives" documentary strand, "Gogglebox Ireland" and even Al Porter's "Blind Date". Early next year, viewers will see TV3 become the home of the Six Nations and "Ireland's Got Talent". Here is the twist - we will do all of this by increasing investment and profitability. It can be done.
As an almost wholly ad-funded broadcaster, the mix of content is essential for us to appeal to demanding advertisers whose choices are becoming increasingly more global. Google and Facebook took 80% of all the advertising growth in the digital sector in 2016. Netflix and Amazon Prime are now challenging traditional viewing habits. Reassuringly, traditional television is holding its own, and total viewing is down just two minutes in the past ten years. We have done this in Ireland thanks to the great programming being produced by RTE, TV3 and TG4. However, if Irish media is going to continue to compete, we have to be much more open to collaborations and partnerships. Over the past year, Virgin Media has entered into partnerships with Netflix on its television platform and we have entered into a partnership with Sky on advanced advertising. These partnerships will keep us ahead of the curve and relevant to demanding viewers and advertisers.
We would love to extend this partnership philosophy to the television sector in Ireland where the combined strengths and talents of RTE and TV3 could be used to drive efficiencies. Examples of this could be collaboration on production and a shared diaspora channel for Irish communities all over the globe. A more collaborative approach would create long-term sustainability for Irish broadcasting through creativity and innovation.
I have raised these opportunities with RTE directly and hope that we could collectively drive new revenue through these ventures. There are also opportunities to work more closely on rights. Arch rivals BBC and ITV lead by example here, where the State and commercial broadcasters have shared rights and studio facilities to save money and to best serve UK viewers. The broadcasting sector faces significant challenges and external pressures, not least Brexit. As TV3 is almost wholly reliant on advertising revenue, Brexit has twice the impact on our business than on that of RTE, where advertising is less than half of their total revenue. TV3 recognises the unique role and function RTE has in a democratic society. Ireland needs a strong indigenous broadcasting sector and RTE has a major role to play in this regard, together with TV3 and TG4. Nevertheless, could RTE get more out of its substantial budget and could it control its costs more efficiently? Through a TV3 lens, the answer is a very firm "Yes" but perhaps that is too easy a prognosis. I have sympathy with RTE being asked to both fulfil its public service remit and maximise commercial revenues. This is the ultimate conflict of interest and results in the issues and structural failure we now see. There is a simple answer, however, which is at the core of TV3's ability to run a profitable business, and that is to cut one's cloth to suit one's measure. TV3 is constrained by a much more limited budget and cannot spend more than it generates in revenue. Fiscal discipline is non-negotiable at TV3. The reality is that RTE continues to have it both ways, enjoying the bulk of the licence fee, as well as close to 50% of the advertising spend. In 2016, the licence fee subsidy alone was almost €180 million. This is the jump start that RTE has over TV3 every year.
RTE has now requested an increase in funding from the State, as well as other charges, but when I look at RTE's share of the market both in terms of viewers and advertising, it enjoys a more dominant position than any other State broadcaster I can find. In 2016, for example, the year RTE reported a €19.7 million deficit, it proudly boasted that it had 20 of the top 20 programmes on Irish television in that year. In the UK, 13 of the top 20 shows come from the State broadcaster BBC, with the other seven coming from the commercial broadcaster ITV, demonstrating a much greater equilibrium in our closest neighbour.
If I were RTE, I would highlight that this is a sign of a great job. Indeed within this list were some spectacular examples of public service programming we should all admire. At the same time, however, RTE knew it was running a deficit and could have offloaded some of these programmes, particularly those that more fulfil their commercial rather than their public service agenda. Indeed, six of these top 20 programmes were Euro 2016 matches, which TV3 offered to buy as part of a sublicensing deal. My point is that last year there were solutions out there for RTE to share the financial burden of content demands. As history has shown, however, when RTE runs up deficits it typically secures relief from Government. Again, if I were RTE, I would not be inclined to reduce spend if I felt I was always going to get a bailout. This all goes back to the “cutting one's cloth” principle. Last year when TV3 saw a drop in advertising revenue, we took corrective action straight away, including running fewer episodes of big shows like "Red Rock". By being light on our feet, however, we maintained our number two position in the market, kept advertisers on side and turned a profit. I honestly think RTE could have delivered the same result.
In summary, an increase in funding for RTE would be detrimental to the sector and most likely would damage other media, including local radio and Irish newspapers. It is surely time for RTE to focus on its core objective, which is to provide quality public service broadcasting. There is a lack of clear definition, however, as to what constitutes a public service. Is it providing dozens of different services? Are they all really necessary? Do they provide value for money? This lack of clear definition and purpose must frustrate RTE as much as it does TV3. Rather than continuing RTE's open-ended commercial remit, let us make sure that all RTE commercial activities are appropriate and cost-effective. Industry competition is always vital and the TV3 story is a great testament to how competition makes you stronger. RTE has been artificially insulated from this competitive tension and to exacerbate this situation by increasing its licence fee funding or introducing new charges would serve nobody, least of all RTE. With six deficits in seven years, it is no longer appropriate for the State broadcaster to be given a blank cheque when it comes to competing against the commercial sector. Indeed, the commercial sector should be recognised for its contribution to public service broadcasting in Ireland.
I hope I have given members some food for thought in the context of the TV3 story. In turn, I ask this joint committee to reassess TV3's contribution to public service broadcasting and revisit RTE's purpose. By doing so, we can find a remedy that does not draw on the public purse or the already hard-pressed taxpayer. Instead let us re-imagine Ireland as world-class player operating on the global content stage, creating inward investment, jobs and a whole new export pipeline. TV3 really looks forward to playing our part in this ongoing dialogue but in the meantime I am happy to answer any questions the committee may have.