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Netflix, YouTube race past BBC as it fails to retain younger audiences

The BBC struggles to retain younger audiences as funding challenges and competition from on-demand services such as Netflix Inc., Amazon.com Inc. and Alphabet Inc.-owned YouTube put pressure on the British broadcasting giant, forcing the company to reinvent its online offering.

In its annual plan, published March 28, the BBC revealed that funding for its U.K. services had fallen 18% in real terms since 2010 as a result of British public service cuts, compared with a 30% and 90% hike in income at ITV Plc and Sky PLC, respectively, over the same period.

At the same time, the public service broadcaster said that vast changes in the media landscape, including a rapid shift to on-demand content and M&A consolidation as global media giants pursue scale, had placed huge pressure on the broadcaster.

"Major new entrants such as Amazon and Netflix have meant that the global media market is increasingly dominated by a small number of U.S.-based media giants with extraordinary creative and financial firepower," the report said.

As a result, stand-alone online video platforms have grown to a quarter of young audiences' total consumption, up from 5% just a few years ago, according to the BBC's report. In addition, just 29% of children use BBC iPlayer, the BBC's internet streaming service, while 82% use YouTube's on-demand content and half turn to Netflix.

"This generation of children embody the digital transformation," the BBC said in its report, adding that while TV continues to be the primary platform for children's viewing, definitions of TV and access to it are changing rapidly.

For instance, the group added that children aged 5-15 spend on average 15 hours and 18 minutes online per week, compared with just 14 hours on TV, while 43% of younger viewers aged 12-15 use their mobile phone to watch TV.

Moreover, with the international media market increasingly dominated by U.S.-based competitors with deeper pockets, the BBC warned of "powerful new pressures" in the U.K. creative economy, placing British content "under serious threat."

Large parts of the U.K.'s creative industry have been squeezed by a rise in big-budget series produced by global subscription video-on-demand giants such as Amazon, Netflix and HBO. For instance, in its report the BBC found that less than 40% of independent production companies in Britain today are U.K. or European-owned, down from 83% a decade ago. This has led to a 50% decline in the international market value for U.K. independent films since 2007, according to an Olsberg SPI analysis of the U.K. independent film sector published in April 2017.

The BBC itself said that its own declining income and the growing investment focus on "very expensive, very high-end content" with international appeal had made it more challenging to fund original British content.

Despite this, the BBC maintained that its iPlayer service, which draws 15 million viewers each month, remains "the best place to find new British content."

That said, it admitted the platform needed a "reinvention" that would involve more personalization and live content, as well as prioritizing investment in diverse British content, drawing on talent from across the country.

Separately, the broadcaster, whose news network reaches more than 370 million people each week worldwide, also said it would continue have a tremendous role to play in fighting "false information, fake news and filter bubble." To tackle this challenge, the broadcaster is focusing its efforts on the younger generation in particular.

"If it is getting more difficult for everyone to separate fact from falsehood, certainty from assertion, then it is even harder for the younger generation," the company wrote, adding that while time spent on BBC News remained broadly unchanged for the adult population, viewing fell by more than 10% in three years for younger audiences aged 16-34.

Among the initiatives launched by the BBC to tackle fake news among the youth population is a mentoring scheme by BBC journalists in up to 1,000 schools aimed at helping young people to filter out false information, as well as a media literacy program designed to promote journalism skills for 11-18-year-olds.

Overall, the group expects to reach "major milestones" over the next 12 months as it reinvents its online services, the BBC's director-general, Tony Hall, said in a statement.

"This transformation is essential. Without it, the BBC will look increasingly analogue in a digital world, and small against giant global competition," he added.