Hello, everyone. Thanks for coming today. We know how busy everyone's schedules are, so it's much appreciated. When I shared our 2024 results, I talked about how impressed I was with the strategic progress of STV, but also that we were embarking on a strategy refresh. Today we're gonna show you the strategy refresh work, and we want to share our future plans for STV. Whilst we'll give you an update on the progress towards 2026, we actually want to talk in more detail about the shape of the business to 2030 as well. The reason why we're going out to 2030 is 'cause it allows us to be more ambitious in our thinking and think beyond the day-to-day. It is also a date when we are on track to have our defined benefit pension schemes fully funded.
It will be here quicker than we think. That's why we're calling the strategy refresh Fast Forward. We're gonna move forward at pace and unlock the opportunities the future will bring. I know we have some shareholders here today who are very familiar with STV, but I also wanted to welcome those who are less familiar with the STV story as well. We're gonna be taking the time to demonstrate the strength of our business model and why we're really excited about the pathway ahead. Now, in most TV dramas, although mainly the brilliant ones we do, everything ladders up to the big reveal at the end. I'm gonna buck this trend 'cause I'm sure you're all gonna want to know the strategic and financial plan upfront. Let me start here.
As we fast forward to 2030, STV will be Scotland's leading platform for audiences and advertisers. We know that we are in a fast-moving, dynamic sector with a formidable competitive set, but we are creating a strong, future-proofed advertising business with momentum. We will deliver high-margin revenue growth through new advertising capabilities that technology and the rise in digital viewing enable, and through the launch of a brand-new radio station that we announced this morning. STV will be a global content powerhouse. It has never been a better time to be a viewer, and we are gonna build on our existing momentum with a focus on returnable content with IP at its heart for U.K. and international customers, doubling our STV Studios revenue to GBP 200 million by 2030 at a 10% margin.
STV will continue to be highly cash-generative with a strong balance sheet, paying a progressive dividend, and with a clear pathway to no further defined benefit pension contributions. This all ladders up to a group operating profit range of between GBP 30 million and GBP 35 million, delivering for audiences, customers, colleagues, and shareholders. We are really excited to share our plans with you today. I am joined by many of our leadership team, so this is how we are gonna structure the session. First up, following me, you all know Lindsay Dixon, our CFO and COO, who is gonna take us through the STV story so far. I am then gonna talk about the foundations of the strategy refresh as well as, as well as look at both our 2026 and 2030 targets and how we are gonna be thinking about the business moving forward.
We're then gonna be talking about the two revenue engines of STV. Talking about our audience and advertising business will be Richard Williams, Bobby Hain, and Danielle Kelly, who will introduce themselves. They're a great team. After that, we have David Mortimer, the CEO of STV Studios, who's gonna be joined by Karen Smith, COO of one of our most successful labels, Tuesday's Child, who will talk about the future plans of STV Studios and our pathway to future scale and profitability. You are also going to see some content that no one in the world has seen today, genuinely a world exclusive. More from David to come. Lindsay will then talk about the financial shape of the business, our investor proposition, and we will summarize, and obviously, plenty of time for questions. We're really excited to take you through our plans.
Without further ado, over to Lindsay for the story so far.
Thank you. Right. Multitasking. For those of you who aren't so familiar with STV, this is our business on a page. We're currently structured in three divisions: Broadcast and Digital, being our advertiser-funded business, and Studios, our growing content production business. Across Broadcast and Digital, we hold two Channel 3 licenses, giving us access to a strong network schedule of programs, including dramas, big entertainment shows, daytime, and sports. Our licenses have recently been renewed for a further 10 years and give us stability and prominence to 2034. Associated with our licenses are a series of commercial arrangements with ITV that are unique to STV and give us certain protections as the only non-ITV Channel 3 license holder. Our Channel 3 content is supplemented on our streaming service, STV Player, by third-party content, which broadens our appeal and reach, giving us a viewing proposition across the rest of the U.K.
This combination of our broadcast channel and VOD service means that we provide advertisers with the compelling combination of mass reach and local targeting. Our content business, STV Studios, is a family of 21 creative labels covering both scripted and unscripted programming and most of the key genres within. We make programs for U.K. and international commissioners from our bases across the U.K. Our focus over the last few years has been to build strength in Digital and Studios to better balance the business across traditional broadcasting, streaming, and production. We've been very successful with this, growing the proportion of group operating profit that's derived from non-broadcast activities from 23% in 2018 to 75% in 2023, when the target was 50%. We operate in local, national, and global markets. The U.K. advertising market is a good place to be.
It's a cyclical market, but television advertising is the most effective medium for advertisers, and so is and will remain a must-have for brands as part of their marketing mix. It's true that the wider macro conditions have been more volatile over recent years, but the underlying linear advertising trend has been an annual decline of only 2%, very different to some of the year-on-year comparisons that you'll have heard about. Viewing habits are changing, but we're migrating as much of that viewing as we can to the STV Player, with VOD revenue growing at a CAGR of 14% since 2019. From a content perspective, we increasingly play in a global market that has strong long-term growth fundamentals. In 2024, we made programs for our biggest number and widest range of customers, including Netflix, Apple TV+, Sky, the BBC, ITV, Channel 4, NBCUniversal, etc.
We have momentum behind us and believe we can continue to grow our very modest market share over the coming years. I am pressing it, honest. Oh. Our business model is simple. Within Broadcast and Digital, we have access to quality content through our Channel 3 licenses, which we supplement with local news and current affairs. We pay for the Channel 3 content via favorable contracts with ITV that protect our profitability. The quality of our content means we deliver both large and targetable audiences that we monetize through national and regional customers, with ITV acting as our sales agent on the national side and our own in-house commercial team generating revenue with Scottish businesses. We have a direct positive effect on the success of our advertisers' businesses, which means many of them return year after year, making STV the preeminent advertising platform in Scotland.
On the Studios side, it's all about converting creative ideas into cash. The momentum of a Studios business is important, as is the track record of our creative leaders and development teams. Our aim is for each label to develop a range of ideas that are pitched to various commissioners with a view of getting a green light on the program commission, making the show on time and within budget, and then getting the opportunity for a recommission and sales in the secondary market, whether that be of tape sales or format. If that's where we are, the markets we operate in, and how the business model works, this slide tells you what's special about STV, what makes us different, and is our right to win in the markets that we operate in.
In Broadcast and Digital, we are the largest advertising platform in Scotland, and we have exceptional relationships with advertisers. Our brand punches well above its weight. If you have a brand that you want to make famous and are looking to boost the results of your business, you have to come to STV. On the commercial side, the arrangements in place between ourselves and ITV, as I've said, are beneficial to us. We get access to the full Channel 3 network program schedule that ITV spends roughly GBP 1 billion a year on, and the mechanic through which we pay for that sees it tied to our national advertising revenues. A line in the sand was drawn when the arrangement was put in place, with an amount being agreed as STV's contribution to the program budget at that time.
From then on, the amount that we pay for content moves in line with national advertising revenues. If we take a theoretical starting point of GBP 50 million towards the program budget, if national advertising revenues go up by 10% in the year, then our contribution would go up to GBP 55 million. Perhaps more importantly, given underlying trends in the linear market, if national advertising goes down by 10%, then our contribution to the program budget goes down by 10%. That happens regardless of whether the program budget itself goes down. We have a more variable cost base than you will see in other broadcasters that gives us profit protection unique to STV. On the Studios side, our strength and uniqueness are predicated on the breadth of labels that we have in the portfolio, covering scripted and unscripted, as I have said, and also our distributor-neutral approach.
These give resilience and optionality that are essential when building momentum in the market. Lastly, STV is a producer and a broadcaster, but without the complexities that come from the businesses being integrated. Studios isn't reliant on STV or the Player for commissions, and STV isn't required to take balance sheet risk for Studios to make programs. Pulling all this together, the work we've done to deliver our strategy over the last few years has driven a rebalancing of the financial performance of the group with strong top-line growth, resilient profits in tough times, good cash generation, and improving debt metrics. This means we've the right foundations in place and are well placed for the future. On that note, Rufus, over to you.
Thank you very much, Lindsay. So hearing about the success of the past few years helps explain why STV's fast-forward strategy is based on refresh, not reinvention. This does not mean we are gonna be resting on our laurels. We are calling this fast-forward 'cause we are gonna move fast and unlock the opportunities the future will bring. Now to our vision as he waits for the slide to load. Right. We know that the advertising and content sectors, the markets we operate in, are extremely dynamic. The STV mindset is that every challenge represents an opportunity. The digital world gives us the opportunity to deliver advertising solutions that our customers could not even have imagined 10 years ago. The streaming revolution allows us to give viewers a personalized experience and, of course, unlock a whole range of new customers for our Studios business.
That's why we're laser-focused on our vision, which you can see there, a globally recognized content powerhouse and Scotland's leading platform for audiences and advertisers. There are four things that we're gonna do. First up, we are no longer gonna be looking at our business as a broadcast business and a digital business. Over the past few years, STV Player has grown significantly, and having that standalone focus has allowed it to scale quickly. As viewers increasingly do not distinguish between linear and on-demand viewing, and as more advertisers buy both linear and digital inventory, our focus will be on maximizing viewing wherever it is and delivering for advertisers across linear and digital. Combining digital and broadcast also allows us to simplify our business and run it more efficiently. Secondly, we're gonna identify new revenue opportunities. We're very good at advertising, and we're gonna do more of it.
We're gonna use the opportunities created by the increase in digital viewing and new artificial intelligence technologies to create what we're calling a new hyper-targeted advertising proposition, delivering for SMEs, unlocking incremental advertising revenue currently being spent on Meta and Google. We are also gonna move into audio with the launch of a brand new radio station from Scotland for Scotland. We're gonna use the strength of our platform and the relationship we have with our viewers and our advertisers to unlock new revenue opportunities too. Thirdly, news is a definitional part of the STV brand, and it's also part of our license requirement. News drives tremendous loyalty to STV and is a huge strategic asset. What we're gonna do is rebalance our resources to match our broadcast strengths in digital, creating Scotland's leading digital news brand.
For STV Studios, we will ensure that our portfolio of labels is focused on where the opportunities in the market lie for which we are well placed and use the strength of our content slate and growing library of IP to grow margin with a focus on ideas that have international appeal and returnability. You will hear more of that coming up. All of this will be underscored by three organizing behaviors. One, cost. Obviously, as we simplify our business and as many previously bespoke technologies become commodified, there are further opportunities to look at cost. Secondly, the STV brand, it is 68 years young with tremendous brand equity and reputation, and we are going to use this to our advantage.
Linked to this partnership, since I've joined, I've had lots of interesting conversations with many businesses who want to work with us, and we're excited about what this might look like over the next few years. This is how we look at our organization. We have on the left-hand side an audience division, which now combines video and audio, leading to enhanced monetization through our core advertising proposition, new advanced advertising capabilities, and we will also look to identify new venture opportunities as well. On the right-hand side, we have our content business, 21 labels, although it is about to be 22 labels, with a commercial international mindset, high growth potential, and as you will hear later on, a place where the best creative talent can get their ideas away.
What this creates is a strong, growing, future-proofed Scottish audience business and a fast-growing international content business with no ceiling to its growth. We are gonna give you two sets of numbers today, looking at 2026 and looking at 2030, but through the lens of our new organizational structure. In 2026, that is obviously only next year, and to reassure you, there is little change here. Firstly, in the audience division, digital revenue will, of course, always be a focus, and in 2026, we are on track to deliver GBP 30 million. We will have a new margin target for our audience division of 15%. Fundamental to our business success is reach, and we will continue to reach over two-thirds of Scots every single month. We are gonna launch a radio station that you will hear about later.
In content on the right-hand side, we know that the market at the moment is a challenging one, which is why we now have a revenue range of GBP 120 million-GBP 140 million. We are focused on our 10% margin, and we will continue there with margin progressing to 8% by the end of next year, and 25% of our revenue will be international, and with 5,000 hours of content in distribution. As you will hear about later, this is really important because revenue from secondary sales is very high margin. We are on track to deliver GBP 5 million of cost savings. As we look to 2030, as Scotland's leading, yeah, 2030, as Scotland's leading platform for audiences and advertisers, we will deliver revenue growth in line with GDP, with a growing operating margin of between 17%-20%.
In five years' time, we will still continue to reach over two-thirds of Scots every single month. We will be a strong and growing and resilient business. In Studios, our globally recognized content powerhouse, we're gonna double our revenue to GBP 200 million at a 10% margin, delivering 50% of group operating profit. Our defined benefit pension schemes will be fully funded, delivering GBP 10 million of free cash flow. Overall, this will deliver a target operating profit range of between GBP 30 million and GBP 35 million. Now, all strategies and all targets are about delivery and execution. To hear about how we're gonna do all of this, I'm firstly gonna throw to Richard Williams, who is now our MD of Video and Technology. Before then, let me just show you a short video bringing to life our future vision for STV and the spirit of the organization.
I've been dreaming of a light so bright, so bright.
We've always been an ambitious lot, modest in size but mighty in spirit. Now we're hitting fast forward, and things are about to get big.
Action.
'Cause I'm the.
If a story needs telling, we'll bring it to life. If a nation needs lifting, we'll put on a show. If the truth needs airing, we'll pull it into focus. If you're a small business, we'll help you grow. If you're big, we'll take you to the next level.
I've been dreaming of a light so bright, so bright.
If the landscape shifts, we'll be out in front. We're what happens when determination meets imagination. We show up, we say yes, we give it a go. Watch STV Studios make hearts race faster on platforms in the U.K. and around the globe. Watch us craft something unforgettable, then share it with the world. Watch us make people say, "You've got to watch this," and watch us do the unexpected.
Welcome to our brand new radio station.
Watch us do all this as a team we're fiercely proud to be a part of. STV's almost 70 years in the making, but we're just getting started.
I'm in love.
Wondering what we'll do next? Watch us.
Right. Richard, over to you. We have a new clicker, which is like the old clicker. Oh, here we go. Right, Richard, over to you.
Who knew the clicker would be the star of the show? Thank you, Rufus, and hello, everybody. I've been the Managing Director of Digital at STV for the past seven years. That's basically the bit that looks after the STV Player. My career started properly at the BBC just a year after the launch of bbc.co.uk. I know, I don't look that old. Since then, I've worked at ITV, UKTV, Yahoo, and Virgin Media. I've held a variety of roles in media organizations, and I've witnessed the emergence of digital firsthand, from those geeky days in the 1990s when the traditional TV types didn't know why we were even there to where we are today, with digital at the heart of any sensible media strategy. Over the next 30 minutes, Danielle, Bobby, and I are gonna talk to you through the new audience division at STV.
This slide is a summary of what we'll cover off. Audience combines the existing broadcast, digital, and commercial areas into a single, simpler structure which allows us to focus on two things: maximizing our total audience reach and monetizing that audience as effectively as possible. That sizable audience is key to new ventures and commercial opportunities, particularly in the digital space where our users become targetable and communicable on an individual basis. Amongst other things, that leads to exciting new advertising opportunities which Danielle is going to talk you through. Our singular obsession with building the largest possible audience has also led us to the decision to move into radio and to pivot into digital news, both of which Bobby is gonna talk you through in a moment. That means we're confident that we'll continue to have a strong, unified audience division with a growing, targetable user base.
It's an unmatched combination of precision and scale, delighting audiences and advertisers alike. Bringing together broadcast and digital is an obvious next step given the shifting landscape of user viewing. Obviously, we've seen a transformation in viewing behavior over the past decade or so. SVOD and AVOD services have become mainstream. Smart TVs, which accounted for 19% of households back in 2015, are now in nearly three out of four homes. Home internet access has moved from around three-quarters to near universality. On STV Player, digital consumption, which is the total number of hours viewed, has more than quadrupled over the past five years. Our user base has more than doubled, and well over 40% of our streams come from content that's never been near the main channel. 90% of that consumption is happening on big screens. Watching on demand increasingly feels exactly the same as watching broadcast TV.
That means that viewers increasingly do not draw a distinction as to how they are watching our content. For drama, there has been a huge shift towards digital, with box sets accelerating the trend. Last year, a third of drama was on the Player. For under 45 so far this year, that figure averages 56% but rises to 75% for some titles. Linear, as you would expect, still dominates around event and entertainment television. For the World Cup and Britain's Got Talent, people still tune in live for those big moments. Of course, you can also watch live inside the Player, and that is growing rapidly too. The emergence of internet-enabled television, that is things like Sky Glass or Virgin Stream or Freely, is blurring the boundary still further. It looks just like telly with the EPG and simple channel switching, but it is delivered over the internet rather than via a satellite or aerial.
For users, digital is just a more convenient and better way to watch television. The shift towards digital is changing the advertising proposition. Digital brings targetability. Users watching over IP are signed in. That means gender, age, postcode, and viewing habits. That means that users can be targeted individually with adverts and messages. As IP increasingly becomes the dominant way of viewing, it means that the percentage of our total base, which is targetable, will continue to grow. That unlocks enormous commercial opportunities. As the line between digital and broadcast blurs and as commercialization becomes increasingly dependent on the technology and data, it makes sense to bring it all together to eliminate hurdles and drive efficiencies. Let me walk you through five reasons why we are confident that the audience division can be optimistic about future growth.
Firstly, it's worth reflecting on the fact that STV has remained remarkably resilient throughout this period of change. These two charts give a pretty good summary of where we find ourselves. The chart on the left will, I'm sure, resonate. Just as STV Player has seen great growth over the past 10 years, has seen the SVODs deliver strong subscription growth, particularly from 2015 through to 2021. You can see that since then, it has actually plateaued. This chart on the right might not be what you expect if you believe everything you read. These are BARB figures from 2024 that show that despite all the noise around SVOD growth, STV in Scotland still accounted for 96% of the top 500 audiences last year.
It's worth reminding ourselves that STV was the most watched commercial source of media in Scotland on 265 of 366 days in 2024, or about three in four. That's even when you include every other commercial broadcast channel, the streamers, and all the social and video sharing platforms. Moving on to reason two, the even better news is that this resilience is forecast to continue. These numbers aren't ours. They are Enders, one of the most respected media analysts. Casting forward to 2030, they predict that broadcaster and broadcaster VOD viewing will fall by only 4% over the next five years and remain by far the most dominant service on TVs, the important large-screen commercial space where adverts are seen full screen in high quality alongside premium content. It's even better news up in Scotland.
This third slide shows that last year, Scots watched 50 minutes more television than the U.K. average every day. Scots love a bit of telly. And we know why. The commutes are shorter, so people get home to watch sooner. It gets darker sooner, and yeah, it's a wee bit wetter. More viewing is quite simply more adverts seen, more commercial opportunity. Importantly, it's not just that they watch more, but that they watch us. We like to brag about this slide quite a lot. This chart shows peak time share of viewing, and you can see that STV is consistently ahead of ITV. Not only do they watch more TV up in Scotland, they watch more of Channel 3 than the rest of the U.K. It's worth saying that SVOD uptake is higher in Scotland too than the rest of the U.K.
You might expect that we'd be harder hit, but that really isn't the case. Fifth and finally, it's important to remember that STV is genuinely loved in Scotland. It's the most watched commercial channel, and it's not even close. It's more than the next five channels combined. STV Player has the highest brand awareness across all commercial broadcasters, outperforming Channel 4 streaming, ITVX, Channel 5 streaming, and Sky Go. That's why STV is responsible for 96% of the top 500 programs. It means we're the most watched news program for the sixth successive year. It means we deliver massive national moments in sport and drama and higher weekly reach than any commercial competitor. The success of the audience division is based on these two principles: scale and targetability.
Firstly, when it comes to scale, we are confident that STV will remain Scotland's biggest commercial advertising platform over the next five years. Why? From a content perspective, we, of course, have Channel 3 exclusive to Scotland, including those must-see sporting events that can really unite a nation alongside world-class drama and entertainment. We have Scotland's number one news and a new radio station. On STV Player, we will continue to invest in third-party content, which is available U.K.-wide. We can make the most of all of that content with powerful self-promotion across broadcast, digital, and now radio, as well as finding new audiences across our digital and social platforms. We will also continue to nurture the excellent partnerships we have with platform owners to ensure our content is promoted and findable on every device. Importantly, all of that discoverability is boosted further by our public service status.
Bobby's gonna touch on that in a bit. When it comes to targetability, the impressive growth of STV Player over the past five years gives us strong foundations. An annual active user base well in excess of 2 million will continue to grow as digital viewing becomes the dominant way of watching both linear and on-demand television. We've built and we run our own product suite to house all of our content. STV Player is a reliable and efficient service on over 15 different platforms. The new audience division brings together all of STV's in-house technology, which underpins all of our distribution, discovery, data, and product development. We own the capability to optimize and simplify everything we do. Analysts reckon that in five years' time, half of the homes in the U.K. will only watch TV digitally.
Remember that a digital user is a targetable user, and a targetable user is a valuable user. The audience division brings our content, marketing, product, technology, and commercial expertise together for the first time, and they all provide levers that can help us maximize the opportunity that this behavioral shift presents. As I've mentioned repeatedly, the scale and targetability is key to new advertising opportunities, and Danielle is coming soon, I promise. A targetable, reachable audience is also the fuel behind other commercial ventures that we'll be launching or accelerating. STV Player Plus, our premium ad-free service, is a modest proportion of our total digital viewing base, but as that base grows, it's becoming more and more meaningful, delivering direct digital revenues. Premier Sports is a deal we launched earlier this year.
It integrates Premier Sports SVOD service into STV Player, bringing Scottish football and rugby to STV Player subscribers. We can market that new service around the major sporting events that we own to an audience that Premier Sports couldn't otherwise reach. It's win-win. A large customer base opens up new commercial opportunities outside of advertising. ScottPulse, Scotland's largest insight service, is already a hidden gem that STV aims to grow. We also plan to enter the competitions and prizes market powered by our reach and marketing capabilities, as well as our commercial relationships with potential partners. We plan to dedicate resources to identifying new ventures that can make the most of our available audience. Now, let me hand you over to Bobby, who's gonna give more details around our audio and digital news ambitions, as well as explain how the 2024 Media Act supports our plans.
Thank you very much, Richard. Good afternoon, everybody. It's great to be here and talk about our next stages. I'm Bobby Hain. I'm the Managing Director of News, Audio, and Regulatory. In my 25 years at STV, I actually had quite a lot of different titles, but I've always been responsible for our Channel 3 licenses public service delivery, working with ITV as our network partner, our public service obligations, our news team, our regional programming, and so on, as well as our touchpoints with regulators and governments and so on. Before working for television and for STV, I spent 20 years working in radio. I am delighted that we are extending into audio and bringing radio into the fold. Actually, when you think about it, it's a natural progression for STV to do exactly this.
This is a chart that shows radio listening and TV viewing across the day. You can see that radio peaks first thing in the morning at breakfast time, whereas TV viewing peaks with higher audiences coming later in the day and into the evening peak time. For STV to add these together with a combination of radio and TV with our digital presence too in Scotland means that we have an always-on connection to our audiences. We are reaching the most number of people in the largest media across most of the day. That is a fantastic development for us as we move forward. Radio itself is very, very resilient. This is a chart that shows you the growth of commercial services lately. You can see that since 2021, commercial radio has overtaken BBC listening.
In fact, 40 million people a week listen to a commercial service now in the U.K. Even though this happened in 2021 in the U.K., in Scotland, it has been the case for longer. We have a higher listening share for commercial than we have for BBC services. Altogether, that 40 million audience racks up half a billion hours of radio listened every single week, which is why it is a market we are excited to enter. Commercially, radio has been very resilient. The share of the overall market has remained very steady. You can see laterally, radio share has been increasing, radio revenues increasing with the help of new products such as branded content and targeted advertising through online listening. STV's new radio station, I will give you the details now.
You can see here that Scotland has a higher interest in commercial services than in the rest of the U.K. It's the same as Richard was talking about in TV. We've already heard that TV generally, commercial services and STV in particular, do better in Scotland than they do elsewhere in the U.K. The same is true of radio. Commercial radio has a higher reach in Scotland, and commercial radio is more listened to, and local commercial services achieve a higher share too than they do elsewhere in the U.K. STV's radio station will be 100% made in Scotland for Scotland. This is how it will fit into the existing marketplace. These bubbles represent the size of our projected audience, the STV station, against today's delivery by the existing services.
You can see that our service will be targeted slightly older than Capital and Heart, the networks, and slightly younger than Greatest Hits Radio and Smooth. Both of those services are U.K. networks, which are largely syndicated. That is a trend we have seen a lot of, which is fewer and fewer programs made in Scotland, less content, more reliance on material that is coming from outside of Scotland, generally London. That is a real market opportunity for us, and that is where we see the gap. The X-axis here is the target age. We will be slightly older than the existing legacy stations in the market, and we will be the most Scottish of all because we will be 100% Scotland all the time. We want to make a quick start on this, and we have today announced the appointment of Graham Bryce as the lead for our radio project.
Graham is the Managing Director of Audio. He comes to us having previously worked as COO for Bauer Media U.K. He has a wealth of experience in U.K. and European media businesses. Most recently, he was responsible for the successful launch of Greatest Hits Radio. Graham starts as of now and is working on the STV proposition with more details on the format, presenters, music, and launch dates to come in due course. Why do we think we can win in this market? The answer is here in these bullet points. First of all, we have an unrivaled platform that reaches over 3 million Scots every single month. Our stock in trade is building businesses. That is what we do day in, day out. We can use our own platform to build and nurture our own radio station.
We have a fantastic commercial network with an advertising sales force all across Scotland every day of the week. We talk to hundreds of businesses day in, day out. We are really well placed to fast forward our commercial development for radio. Our TV strengths are complementary. We make news, weather, sport, entertainment already, and they will transfer to radio. Of course, digital and online listening will continue to increase. As we come into this market, it is just at the point where FM and AM are continuing to decline. Virtually no AM listening at all anymore. Over the next few years, moving in favor of the medium that we will use to reach our audiences. Finally, there is that sense of incumbency. We have been here for 68 years, as Rufus said. We are Scotland's preeminent commercial platform.
With seven decades of working to the tastes and interests of Scots, we're really well placed to add radio into our portfolio. We have a big ambition here. In 2030, we want to be a top three station in Scotland. We want to reach 500,000 listeners every week, on average listening for 10 hours a week. That gives you 5 million hours across that week. That supports GBP 5 million worth of revenue in a year. Because of radio's simplistic and efficient operating model, that will translate into GBP 2 million worth of operating profit. We reckon that in 2025, there will be a setup cost of GBP 5 million. Thank you, Angela. On that note, I will pause for more on our future advertising proposition from Danielle.
Good afternoon, everyone.
I'm delighted to be sharing our future advertising plans with you today, and I'm sorry I can't be joining you in person. I thought I would start with a short introduction. I joined STV in 2008 after starting my career in the software industry, working with brands such as Emirates and Royal Jordanian Airlines. I've always been passionate about the business growth that can be achieved with the power of brilliant marketing. I'm very proud to have developed and launched our STV Growth Fund, and I'll be sharing more on the impact of the fund a little later. As Commercial Director, it really is a privilege to lead a dedicated team of specialists who deliver bespoke advertising solutions for customers across the country, and of course, to see the very real positive impacts of these solutions for our advertisers.
As you have heard from Richard and Bobby, we are very positive about the future outlook for TV, BVOD, and audio audiences as we fast forward to 2030. We are equally positive about the strength of our advertising propositions, enabling advertisers to continually build connections with valuable consumer audiences across Scotland. This connection with audiences really matters to advertisers, which is why TV remains a must-have advertising platform for brands. Insights from the highly regarded study, Profitability 2: The New Business Case for Advertising, conducted by Ubiquiti, Essence Mediacom, Game Theory, Mindshare, and Wavemaker UK, covering GBP 1.8 billion of media spend, highlight that TV is responsible for over 54% of advertiser-generated profit, with an ROI of GBP 5.61 for every pound spent. As you can see, this compares to under 4% for online video, which is mostly YouTube, which has a lower ROI of GBP 3.86.
TV, therefore, continues to drive effectiveness for brands due to our brand-safe content, full-screen viewing, the important halo effect on consumer decision-making from that shared viewing experiences, and our 100% ad completion rates, all driving business results for advertisers. Not only does TV deliver exceptional return on investment for every pound spent, it actually makes other advertising medium work harder, with one of the highest multiplied effects being on radio. For TV advertising, combined with radio advertising, makes the radio activity work 31% harder. This is why we are so excited about the launch of our new radio station and the new opportunities for advertisers in Scotland, as we expand our suite of ad products, unlocking incremental revenue. We are already in a uniquely strong position due to our experience, our credibility of working with businesses across a wide range of sectors for many years.
Across our STV-controlled revenue in Scotland, our active brand count in 2024 was up 10% year on year, and our average monthly brand count was up 9%. Reflecting the ongoing importance of that multiply effect of TV, 62% of our SME advertisers were active across both STV and STV Player in 2024, and that's up from 29% in 2022. 64% of 2024 Growth Fund members are existing from the prior year, and a massive 94% of members recommend TV advertising. We launched the STV Growth Fund in 2018 to make TV advertising even more accessible and affordable to Scottish advertisers. We've seen that great marketing really delivers results, and we wanted more companies to see that too.
We believe that if businesses can access our powerful ad solutions just that little bit earlier in their business journey, then they can not only grow more quickly, but also continue to reinvest back into their marketing for many years to come. We make the fund as easy as possible for businesses to join. The only criteria are that you're a Scottish registered business and/or you work with a Scottish media agency. From there, it's about having a chat with our experienced team to understand your marketing objectives and build solutions that will really deliver business growth. There are four routes to accessing funding from the STV Growth Fund: match funding, revenue share, media for equity, and gifted memberships.
The majority of our members work with us on a match funding basis, and this enables them to grow and reinvest back into their future marketing to reach a wider audience and drive their businesses forward. With the STV Growth Fund, we have really created a club over the last seven years that advertisers want to be part of because it brings benefits, including support and ad production for our STV Creative team and valuable insights through our Market Voices consumer trend white papers and also our Scott Pulse research tools. Since launch, we have allocated over GBP 37 million across 1,400 deals and 974 ad campaigns produced by STV Creative. We are proud to have developed deep and enduring partnerships with the SME businesses we work with. We know that our ad solutions can really deliver growth, and we know this because our advertisers tell us.
STV has really helped us in reaching different areas that we had not previously done with other marketing channels that we use. When our advert has been on TV, straight away, our social media numbers go up, but more importantly, we can really accurately pinpoint our demographic. Every time the advert airs, we see an uplift in the amount of people coming to visit us. STV helps us maximize our budget. We never anticipated how much growth we would have. Our brand awareness is at an all-time high, and the results are speaking for themselves.
You have heard about the effectiveness of our advertising propositions, our connections with our audiences, and our credibility with SME advertisers across Scotland. It is this combination that allows us to enter a new advertising market segment with incremental revenue potential.
STV Adapt is a brand new hyper-targeted ad proposition that's adaptable to the needs, budgets, and target audiences of SMEs. There are three key components to STV Adapt. The first component is an accessible and user-friendly online interface where SMEs can select, book, and transact their STV campaigns at the click of a button, evolving our self-service offering. Advertisers go online and book their target campaigns, uploading key marketing messages and logos. The second component is cost-effective creative, with AI-enabled advert production linked to the online interface and clear to run. The final component is flexible audience targeting, access to regionally addressable audiences in towns across Scotland, very relevant to high-street SME advertisers. STV schedules slots across STV Player and STV Linear over the internet, delivering campaign requirements. This all allows us to enter a new market with incremental revenue potential. We're already highly experienced and trusted. We know SMEs.
We actively work with them every day through our successful STV Growth Fund. Through STV Adapt, we will be able to offer advertising solutions to the long tail of smaller, more geographically focused brands to continue to grow market share. We estimate this market to be in the region of GBP 125 million, and these smaller SMEs are typically active across Facebook and Google. Through STV Adapt, we will offer smaller SMEs accessibility to our audiences at competitive, cost-effective rates. TV is an average 20 times cheaper than other online video advertising, such as Facebook. We are much more cost-effective than social media. As Richard highlighted, technology developments mean that as we scale up IP viewing, STV Adapt will be able to deliver micro-targeting services across live and VOD viewing on Linear and STV Player, continuing to increase the addressability of our audience.
A number of SMEs from across Scotland are already on board as pilot partners for STV Adapt, and the key reasons they've joined the pilot are to access cost-effective, targeted TV that connects with audiences relevant to them, driving growth for their businesses. As you can see from Linda's quote, this would open up a lot of potential, exciting times, and we absolutely agree. This is an exciting development in continuing to future-proof our advertising propositions with enhanced monetization across a new suite of ad products, unlocking incremental revenue growth as we fast forward to 2030. Bobby, back to you.
Thank you very much, Danielle. I just wanted to pick up on a couple of other points that Richard highlighted. First of all, say a bit more about one of our fundamental characteristics at STV as being a public service media operator, commercial public service.
Successive governments have recognized the value and the importance of public service programming. We were working with the Ofcom Public Service Review only this week as the regulator considers ways that going to digital public service delivery needs to change and adapt so that it becomes affordable and remains sustainable in the long term. That is a really exciting, important piece of work for us. We were delighted too to see the Media Act pass into law last year. I think it was unprecedented collaboration between all the public service operators, BBC, Channel 4, ITV, ourselves, lobbying both the Commons and the Lords to make sure that the most important legislation and the biggest legislation in media for 20 years managed to get onto the statute books, which it did.
Crucially, the Media Act brings the same entitlement to prominence on digital television platforms for STV and STV Player in particular that we have enjoyed on TV electronic program guides, the channel lists, for as long as we've been a television service. That is really important for us because it's really important that STV news and all of our other program offering remains discoverable, easily findable, easy to watch by the audience, and that we get the correct attribution as people find that content. That is what the Media Act starts to fix. It needs to be implemented quickly, but that's what it starts to fix, which is very good news for us. As a linear broadcast moving to digital, news is the best example.
You've already heard a couple of times that our news service has been the most watched news program in Scotland over the past six years, which is fantastic and great by the team. Actually, it's often the most watched program of any genre on television on a particular evening, such is the interest in news. Ensuring that it remains findable and discoverable on the media on digital platforms as well as in linear is hugely important for us going forward. I want to say a little bit more about STV news too, because that six o'clock news, the digest of the day, remains very important and highly watched. Of course, our audience is moving to digital, and increasingly, they expect us to publish stories and video, particularly whenever the news happens, not waiting until six o'clock.
We are increasingly doing that, and we are refining our editorial offer to make it more targeted around specific genres. We have already had great success with that, for example, in weather and entertainment and sport. They are part of our news operation day to day, but they have moved outside of the news environment and in many cases become programs of their own elsewhere on the schedule with associated commercial opportunities. We will do more of that in future. On our owned and operated platforms, we have seen great growth over the past few years, increasingly too on TikTok and Instagram and third-party distribution, which we think will continue to be very important for our news operation going forward. We will spend time making sure that our distribution and our content reaches our audiences.
We already have the editorial resource that we need, and we've earned the editorial credentials over decades, and we will continue to pivot to more digital news as we move forward. To sum up, the audience business in 2030, we will maintain our total reach as the platform of scale in Scotland. That is a combination of audiences of scale from must-see sporting events, flagship drama, unmissable entertainment from our network partner ITV, alongside the news and the current affairs and the regional programs that we will make too unique to Scotland for Scottish viewers. We will target our audiences not just with our programs, but also add in new micro-targeted advertising opportunities, as Danielle has just outlined, together with more addressable advertising widely across our digital offering. We will use our platform to work with new partners and create new venture opportunities as we move forward.
We've talked about the new radio station we'll launch soon. That will be a big part of our offering come 2030 and a top three commercial service in Scotland. We will move news increasingly to digital and take the credentials and the brand power we have in STV news into a digital environment and that suite of new targeted ad opportunities I just mentioned. Overall, as we move to 2030, we will grow revenue and maintain margin. Thank you. Now let me hand to David.
Thank you, Bobby. How's the energy in the room? I think we've done about 10% of the slides now, so if I rattle through my bit, I promise we'll be home for Christmas. I'm David Mortimer. I'm the clues on the slide there, the CEO of STV Studios, and I've had a varied career in television.
I was at the BBC for 15 years and was Louis Theroux's producer for 10 of those years. We won Emmys and BAFTAs working together. I then became a network executive at BBC2 and commissioned hit shows like The Office, Recast Link, Great Britains. After that, I became Creative Head of Factual Entertainment at the BBC, and that's when I first met the rather brilliant Karen Smith, and we're going to hear more from her in a minute. During this period, I was responsible for developing, producing, launching Dragon's Den, so that's a big old beast of a hit. I went on to launch my own indie, Fever Media, for seven years before joining NBCUniversal, and I headed up their international group of unscripted companies around the globe.
The thread that runs throughout my career is a belief that the most exciting thing you can do in television is where creative intention meets commerciality. My team probably gets sick of me reminding them that there is a reason it is called show business. What we are going to talk about today is where the show meets the business. Just over six years ago, I joined STV with the expressed intention of shaking up what was frankly then a bit of a moribund business. We were called STV Productions. When I got to STV, the production division consisted of three rather old-fashioned in-house production departments: STV Drama, STV Factual, and STV Entertainment. There they are sitting in the left-hand box.
They were almost wholly focused on making shows for the PSBs, and frankly, the people who made those shows were more concerned about winning awards than they were winning viewers, let alone profits. My first task was to refocus our efforts of our in-house group onto a new collection of buyers looking to work with the streamers and international buyers to ensure that from development onwards, we had a laser-like focus on the commerciality of those ideas that we wanted to bring to screen. The successful reimagining of in-house was what won us permission to move on to stage two of our reinvention, investing in both existing production companies looking for a new home and startups so that we could greatly increase the pool of creative talent working with us at STV Studios. We had renamed ourself by this point.
You'll see that the 21 production labels we work with fall into three categories in terms of their ownership structure. Companies we own, like Todd Productions, makers of the incredible Criminal Record for Apple TV+, companies we have a majority position in, like Two Cities, and more about them in a minute, and those like Rockerdale, makers of breakout hit The Assembly for ITV that are still in the early stages of their commercial journey, and we wouldn't want them sitting on our balance sheet just yet. TV production companies take time to grow. An unscripted idea can take two years to go from a brainstorm to being on television, and it's an even longer development period for dramas. A writer having a first idea through to that moment where it's a TV show hopefully being shared with a global audience can be a five-year journey.
We're also careful to strike the right balance between offering creative, practical, and commercial support for these growing companies so that we protect our own exposure. We don't want to be in a position where we're damaging our own balance sheet because of the position that those minority companies are in. In extremis, we know when it's time to end a relationship with one of the minority entities, and you'll have seen over the last 18 months, we've exited from four businesses. We sit in a hugely competitive sector and literally have no right to exist beyond our ability to win commissions from our partner broadcasters and streamers, our customers. Without the benefit of returning series, we'd be effectively building a business from scratch at the start of every year, which is why it's so important that we've been able to create a group of strong returning series.
We now have an extraordinary 40, that's four zero, 40 different returning series that underpin the economic strength and the creative heart of STV Studios. Beyond that, we decided early on that we wanted to offer potential creative and commercial partners something unique in terms of the relationship that we would have with them when compared to competitor production groups like All3Media, Banijay, or ITV Studios. Our approach, informed by my own experience of having been on the other side of the table when I was looking for funding for my independent production company, is to deliver a real partnership to our 21 labels. And those companies who approach us about possible partnerships, we have a conversation, an honest conversation about how we can help them. Every relationship is unique.
Our starting point is to ask potential creative partners, "How can we help you?" What all of these relationships have in common are as follows. We guarantee creative autonomy to the brilliant producers we work with. We bring a global mindset to the table. We are asking the question, "How can we make this story, this show, the best possible show it can be, and how can it have the biggest impact around the globe?" Because at that point, that is when you begin to drive real commercial value. Our portfolio approach means that if a company is not immediately successful or has a difficult year or two, we are not in a position where we have to pull the rug from underneath them. We can support them.
In success, each of our companies helps us to grow a library of IP, which in turn makes money for both STV Studios and the production entity in question. Finally, we think that we deliver a best-in-class back office operation that helps to ensure that every show makes the maximum possible return on the creative and financial investment that we've made. This creative and organizational renewal and review had one thing in mind: transforming the commercial performance of STV Studios. I'm sure that's the bit that you're really interested in. By any measure, it's been an extraordinary success story. Since the relaunch in November 2018, we've delivered significant growth in both turnover and profit, all the more impressive when you consider that this period includes the year where TV productions were pretty much completely out of action because of COVID.
I'm sure we remember that dreadful time. Even Mr. Chips, the star of Celebrity Catchphrase, was not allowed back in studio until he'd been tested and agreed to wear a mask. That's how seriously we took it. Across the six years, our turnover has grown from GBP 16 million to a record-breaking GBP 84 million last year. That's a CAGR of 32%. The profit story is even more impressive, with EBITDA growing from a big fat zero when I took over to just over GBP 6 million last year. That's a CAGR of 52% over the last six years, and it shows that profits are growing ahead of turnover growth. We've increased our margin from 3% to 7%, and that CAGR makes me believe that we have an identifiable path to get us to our 10% target.
This growth has partly been driven by us having three successful drama companies, meaning that as turnover has grown, the proportion of total activity accounted for by our scripted shows, a very small number of hours, but delivering a big chunk of our turnover, is significantly bigger than we previously would have expected. Here is the good news. Even in turbulent economic times, the global content market, the total global market for content, continues to increase. We think we are only at the beginning of our journey of how we can continue to grow to make more shows and, by extension, make bigger profits.
Focusing back at home for the moment, our positioning as the biggest nations and regions-based production group means that we're uniquely qualified to benefit from a regulatory framework that makes sure that the PSBs can't make all of their shows within the M25, the boundaries of the M25. For instance, Bridge of Lies, our BBC One Entertainment hit, is made just down the road from our Glasgow headquarters. Celebrity Catchphrase is made in Maidstone, and perhaps least surprisingly of all, Blue Lights, or rather I should say the BAFTA-winning Blue Lights, is made in Belfast because, of course, it is a Belfast-based drama. What do all these shows have in common? They're not just great bits of content. They're franchises that have the possibility to drive value for the group well beyond the existence that they have in our home market. It's not just about serving U.K. viewers.
It's about thinking beyond that. In extremis, it's possible to create a show that takes the globe by storm. The nearest an ETV you could have to having a gold-making machine in the back office. Shows like Dragon's Den, which has now been produced in over 50 territories, or Strictly Come Dancing, co-created by a certain Karen Smith, playing in over 80 different countries. Obviously, we'd love to have one of those, but we're already lucky enough to have shows like The Fortune Hotel or the upcoming Amadeus that sit in the premium quadrant of TV production. We're equally proud of our low-cost operation. We virtually own the word antiques. Pretty much 24 hours a day, if you turn on certain channels, you will find one of our many reinventions of our antique shows playing, and that's a brilliant triumph.
Rest assured, we will not be playing in the avoid quadrant. That is nowhere that we are going anywhere soon. I promised you there actually was a show called Air Fryers Made Easy. To be fair, it did very well for its broadcaster. I cannot imagine that it did very well for the production company. We will continue to avoid that quadrant of the available target market. TV production is a momentum business. Before Criminal Record came along, there were commissioners who would be slow to take meetings with the Todd team despite their supremo, Elaine Collins, having an extraordinary track record. She was the woman who created Vera. I am sure, like me, everyone in the room must love a Vera who'd done it.
This was the person behind that show, but it took Criminal Record and the great success it had for Apple TV+ to transform the opportunities available to Todd. As this diagram outlines, once you become known for delivering great ideas, it becomes just that little bit easier to grow your business off the back of that first success. Our success over the last few years has in large part stemmed from the fact that there is a virtuous circle, as I have just described. For us, it is not just related to one subgenre, let alone one company. We have a broad portfolio of dramas sitting on both the streamers and the traditional channels alongside regular new unscripted launches growing out of our existing centers of unscripted excellence.
We have our well-returning brands, and off the back of that, we get to launch new shows because the buyers believe in us and want to buy from us. What all these different types of shows have in common is their ability to drive value in the secondary sales market, the sale of finished tape and formats to international buyers that in turn delivers increased margin for us as a studios group. You can see from the graphs outlining the growth in both the hours of STV Studios content available for distribution and the consequent increase in the revenue that we drive from secondary sales that we're beginning to get the benefit from an increased number of returning series that we have. On the unscripted side, the value in the underlying formats that some of those shows represent.
I'm pretty sure that your favorite figure, possibly the whole presentation, but certainly on this slide, is the 60% average gross margin we can then deliver on IP revenues. That's why in the business, people often talk about the free money that's available in the world of IP. You get those shows that have value internationally. You know how to make them. You make them year after year after year. Increasingly, the margin you can derive from that is very, very good. The portfolio approach and the secondary sales value it delivers is a key part of how we'll grow our bottom line margin to 10% in the years ahead. We're very focused on that target. We're going to be delivering to a broader range of customers, an ever broader range of customers.
We'll retain that focus on returnability that I've talked about, and we'll grow and continue to grow our distribution catalog and make sure that we embrace an efficient production model and an efficient back office model as we go. Just look at this snapshot of the range of buyers that we sell to. This is completely transformed from who we were selling to five or six years ago. If you're a big PSB, if you're a streamer, if you're an SVOD, whoever you are, we're having conversations with you, and increasingly, we're making shows for you. Beyond that, these program images give you a sense of the huge range of content we're delivering across every type of platform: PSB, streamers, VODs, SVODs, fast channels, brands, social channels.
On each of these platforms, there are hit STV Studios shows finding an audience and, by extension, driving big commercial value to our partners, to our buyers. In all of this, Two Cities is the perfect case study of why we believe our model is one that can continue to deliver significant commercial growth, particularly when we identify the ideal moment to get into business with a creative entity and when we decide to invest in top-tier creative talent. Two Cities have had a five-year journey of reinvention starting in 2020 with our original investment of GBP 1.5 million for an equity stake of 25%. This allowed them to slowly build a development slate and nurture key writer relationships. What that delivers five years later is the BAFTA-winning—I am contractually obliged to say that, by the way—the BAFTA-winning Blue Lights.
They've also won STV Studios' biggest ever commission with Amadeus from Sky and NBCUniversal, which is going to be coming to screens around the globe later this year, and we're very, very excited about that. Two Cities' previous backers, BBC Studios, had foolishly lost faith in the company and the creatives who worked for the company. I had a prior relationship with Michael Jackson and Stephen Wright, the two principals. I believed in them. We believed in them. We gave them the financial, the creative, the personal support that allowed them the time, the space, and the belief to turn that business around. Having that faith has paid huge dividends. Most excitingly of all, the creative success that I've hinted at has been more than matched by the commercial value that our investment in Two Cities has returned.
The multi-series order that we got from the BBC for Blue Lights that, frankly, Two Cities probably would not have got without our support has been the financial bedrock and also, frankly, the creative bedrock on which the greater business has been able to be built. The first 11 months where we've been able to consolidate their results, Two Cities' results into the wider STV Studios group, have been incredibly positive. They have delivered just under GBP 32 million of revenue to us, which means an operating profit of just under GBP 3 million. That is already an impressive 25% return on our original investment. This is where great creative meets a brilliant business decision. As you can probably tell, I'm pretty proud of the Two Cities story and our relationship with this brilliant production company.
In celebration of that, let's take a look at a clip which is a trail for the last series of Blue Lights. Last as in previous, not last ever, I should say. It's a big hit for BBC One. It's a big hit around the world. In the U.S., we play on Britbox. Take a look at the trail.
What's your take on what's going on out there? Just chaos, street crime, robberies, drug seizures, overdoses. Take your pick. Get the people out on the street. The worse it gets, the better. We have to prevent that at all costs. Can I go now? You can go when I say you can go. Are you okay? No, not really. You had your chance. We're the future. We humiliated them. It's called police work. You can't do that. It's under control. It's needed. Great.
When it comes down to it, I'm the one that's going to make a difference out there. That's what I'm afraid of. See what you're doing? You can't bring it here again. You dare me? That's a good man. You can't see a rest place. Watch me. Is that really a life you want to live? Desperate times call for desperate measures. That is what I thought too. What was coming back inside? Why didn't you do anything before now? I don't trust any of you. We had no help, no guidance, no law. It needs to be out in the open, all of it. We're policing an area that could explode at any minute. Get them out of there as soon as you can. They're going to be overrun. He could have been killed.
You've already all watched the show.
If there's anyone in the room who hasn't, please go back home and watch it on iPlayer. It's been a massive hit for iPlayer. To Bobby and Richard's points earlier, it points to the changing relationship between audience and a show. This is a show that grew slowly on the iPlayer and then became a big hit because people were talking about it. They were telling their friends about it. It grew, and it grew, and it grew, night after night, day after day, having dropped as a box set on day one. We're very, very proud of that story. I don't know whether I mentioned it's won a BAFTA. Without further ado, I'm going to throw you over to Karen Smith.
Karen Smith is the CEO, the creator, the life force at the heart of Tuesday's Child, one of the shining jewels in the crown of STV Studios. She also happens to be one of the world's best producers. She did not pay me to say that. Over to you, Karen. Hello. Nice to meet you all. Who the hell is this?
I'm Karen Smith. I'm going to tell you about the beautiful, beautiful thing, which is how international non-scripted can make money for you. Poor Angela. I've been real smartass, and there's loads of click-throughs in my slides. Buckle up and pray for Angela. This is who I am. I started out as a day producer on This Morning, Thursdays with Dr. Chris. Three weeks in, I did the live Viagra trial.
It was on the front page of every single newspaper. My dad phoned up. He's like, "Yeah, yeah, Karen, do I have to come and get you?" He thought I was going to be packed off back to the Northeast in disgrace. I was like, "No, Dad. It's a good thing." Six months later, I was editor. A year later, deputy editor. A year later, editor. I then went to Endemol and launched Fame Academy, a big singing show. Kirsten, who is our press officer, massive fan of David Sneddon. Very embarrassing meeting we had then. He was the winner of Series One. We also did The Games, which is a big reality athletics competition for Channel 4. I got a call from the BBC to say, "Can you come and be an executive producer at The Entertainment," which is where I met David.
We had a bit of success with that. I was the co-creator and launch executive producer of Strictly Come Dancing, which is known as Dancing with the Stars in the rest of the world, which is such a better title. As David said, in the last 21 years, over 80 different versions of that have been made. I was then poached by Liz Murdoch to go and run Shine TV. We had some success with other international formats while I was there. The reason that non-scripted is such a brilliant genre to be in, and non-scripted is everything that is not a drama, essentially. We do everything from reality, competition shows, quizzes, game shows, comedy, all called non-scripted. Those are the shows that you all have heard of because they are the biggest shows in the world, and they have such longevity.
I realize you guys like to chart, so these are two of mine. This one is awesome. It shows you that U.K. producers are still the leaders in the world. Actually, from 2023 to 2024, the amount of formats launched in the U.K. internationally actually grew. The next biggest is the U.S. The upcomers on the outside are the Netherlands, but still, U.K. formats are what the rest of the world want to buy. One of the reasons, another reason why it is so brilliant to do unscripted in the U.K. is it is the most lucrative place to launch formats. We have the best rights positions here. If you launch a format anywhere else, the originating broadcaster takes the lion's share of the revenue, but not here. Unscripted formats can have massive longevity.
If you look at this chart, Family Feud is Family Fortunes, was launched in 1976. There were still 16 versions of that format made last year. Strictly is still on there, Dancing with the Stars. The Voice is still the big. That's 15 years old. Strictly is 21 years old. They're the biggest shows in the world, and they have the greatest longevity. How the revenues work is lots of different ways. The best way is a format fee. If you've created a format, and a format is a show that has a structure. It has a skeleton that you can then take and replicate in all of the other countries. What happens is when you create the format, you create a Bible, which is exactly how to produce the show.
In there, it has all of the information on casting, budgets, scripts, lighting, everything you need to know. You might offer some consultation as well and go there and help. For that, they will pay you 5% of their production budget in every single territory. That rises incrementally, series to series, and can get to kind of 6.5%, barring competition prize money and host fees. You get it on everything else. Tape sales. Some programs make great money out of tape sales if it is not a format. You can actually just sell the tape internationally, and it just goes out there and is broadcast, and you make lots of money. The sweet spot is if you can do both.
If you can create a show, your tape sells, and then Australia buy your format, and then they can give you your format fee. They will also buy your tape because they do not want anyone else to buy it. They will make tape, and that tape will sell. I believe you guys call that compound revenues. A little bit of your lingo. Stay with me. We are not attached to a single distributor. Tuesday's Child works with all of these different distributors. That works really well for me. I was not happy when I have been attached to a single distributor. I would much rather play the field. I would much rather, in TV terms, be the mistress than the wife. It means you can leverage big cash advantages because you have created a competition. It also means that you can access other opportunities.
There is a distributor on there who owns some channels, and they are coming together to launch new IP. Usually, it would be only offered to their in-house companies, but because they're trying to woo me and get my shows, I now have opportunities to sell formats directly to Swedish and to German channels just because they want to work with me. That works for me. The other beautiful thing are these upstream revenues that you can get. In a format, there's a lot of music. It's your theme music. It's the beds, the tension, the heartbeat that runs underneath all of the stings. If you make them original music and you own them, and then the rest of the world uses that music, you collect revenues every quarter from that one piece of music you paid for. There is a thing called a secondary rights collection.
Oh, that is a lovely check when that one comes in. Imagine I've sold a tape show to Belgium. It then often bleeds into other territories, and they collect the revenues for you, and they send you a check. You've made money while you were asleep, and you didn't even know it had happened. All of these things can build up from one great big hit format. Tuesday's Child launched it 13 years ago after I left Shine. All those other formats that we'd worked on, the deals had been done by middlemen. They'd been done by sales teams. I didn't have a great profile personally internationally. I made a point of changing that because I believe that formats internationally are best sold by the creator. It's the same as you do in the U.K. You have the passion. You have the vision.
You have the ambition. You understand the DNA of the format. I made it a point to get to know them all and to get to know them all personally. I see all of the big European broadcasts three or four times a year. Same for the Americans, same for the Australians. I also made myself really popular by staying across every single stage of the process. I do not give in. I will chivvy. I will harangue. I will nag. I will not take no for an answer. I'll find workarounds, and I'll stay on it and on it because I believe my shows should all be international successes. I have a stage sale process. We start at the very beginning.
Just as soon as I've got U.K. channel interest or I'm making a proof of concept or a pilot, I'll start to let all the trusted buyers know I've got this thing coming up because I do not want them to be buying a singing show. If they don't know I've got a great one coming through, I need them to wait for my show to come through. I've actually made sales internationally at this stage. We made a hypnotism game show for ITV called You're Back in the Room with Philip Schofield. I'll tell you about it in the bar. I'd made the pilot. We hadn't even edited it. I shot it the day before. I met the Australians in a hotel. They put headphones on, and they watched a game from the uncut version, and they bought it in the room.
I would follow up for materials for the series. It's all of the noise they're making, the sneak previews. You keep the story alive. You keep promoting it. You don't let them forget. You build up. It's not quite a hype. I'm not an American. It's just about keeping people excited and keeping it on their radar. We then have the ratings and the noise from a transmitted series, and then your series two pickup announcement. A really, really lazy distributor will tell you it's only in this stage that you can sell a format. That is not true. That is not true. I have made sales at every single stage of that process. This, making it personal and using my relationships and my reputation, has meant that we can sell paper formats.
I haven't made it yet, but to other formats, other territories internationally, because they then have confidence in me. They know me. They trust me. We have sold formats directly to the US networks that then I'm able to make in the UK, and then I get the production margin on it. All of this is working. It's just a little flex. Just last week, we were listed in the top 10 international format creators in the world in the Real Screen Global 100. I think we're actually top five, but I'll leave you to make your mind up. These are some of the formats that we have made that hopefully you've heard of, but I wanted to just give you a couple of case studies about how they worked. Lego Masters, original pitch to Channel 4 in 2015.
It took me 18 months to reassure Lego that this was a good idea, that the most trusted brand in the world, in Forbes magazine. Quite rightly, they did not want to do anything that could potentially bring a dispute to the brand. I persuaded them, and we then made a series of just four reps for Channel 4, which launched in September 2017. Big hit. Really big hit. It hit all their key demos, all those underserved young audiences. We quickly made a sale to Australia to Channel 9. They had a host that was a massive Lego fan, and they went really big on it. Just like they had done with MasterChef, they supersized the show to be a big entertainment show, which we had not been able to do on Channel 4 budgets. I took the title out to tender to attach a distributor in 2018.
We went with Banijay in the end. They paid a good advance, which is nice. They also have this network of international producers. That means in all of those territories, they were able to have really respected and instant conversations between creatives and commissioners that I was then backing up with my conversations. They were hit with a real two-pronged attack. The other thing I did is I retained the copay rights in the U.S., which means in the U.S., on Fox, when we make Lego Masters, Tuesday's Child gets a share of the local production fee. We get our format fee, and we also get a share of the local tape sales. We've now made over 60 episodes over there, and we're in production on season six. That's a lot of telly. The format has sold in over 20 territories.
The tape of all of those shows that have been made has then sold in 40 territories and sometimes in the same territory to multiple buyers. All of the English-speaking tape originally went to E4. We have now moved it to Amazon Prime Video. It is the same tape that we made originally that was then played again, and it is now being sold again. It is only a repeat if you have not seen it. The kind of amazing part of this story is we only ever made two short series in the U.K., plus a couple of celeb specials because of personnel changes. It just shows you from small little bricks, beautiful big things can be built.
Guys, come on in. Welcome. Hello, builders. Halo zusammen. À la crème de la crème de la brique. The builds are bigger. The challenges are tougher.
This is what it all has come down to. The pressure. Wow, it looks amazing. Nice. Le dream team. All right. Allez, allez, go, go, go. This is super cool. Mama. You really did a great job. I love you, Dad. The power of Lego. Get your brick on. We're going to smash this. Whoa. Tinkabri. Happy to make you sit in. Big. Big C. Oh, wow.
The story continues. One of the beautiful things about having this whole network of other producers internationally is they then help you. They're a brain pool. They help you grow the show as well. As you saw, we've now got multiple derivations of the series that you can then take and sell to other partners. It's like a self-seeding money tree. A lot of these things were in the original UK version, but we've got the main series.
We've got celebrity versions. We've got kids' versions. We've got Christmas and holiday specials. That's builds in snow globes and all sorts of magical things. Out of the box, you saw there that has just launched in the Netherlands, which is taking it out of the studio and into location. The Australians are just about to launch local territory versus the rest of the world. You've got to look it up on Insta. There's a great promo. Hamish, the host, is getting on board a rocket and taking the piss out of the New Zealanders. They wanted to call it Lego Masters of the Galaxy. Movie producers said no. What Lego Masters has been brilliant for us is obviously for upstream revenues, but it's about the creation of relationships and also personally for the fact that I co-exec with Brad Pitt in the U.S.
Another of our shows that hopefully you've heard of, if not, watch it on Saturday night on BBC One, is The Hit List. It's the music quiz where all you have to do is know the song and the artist. We have made eight series in the U.K. Series seven is on now. We've just delivered series eight. Over 85 episodes for BBC One. It's a rating smash. It wasn't on last week because of Eurovision, but if you click on Angela, these are literally the ratings. It's the number one show all day on BBC One in your face, Doctor Who. The beautiful thing is it's really, really economical to produce. It appeals to a broad mainstream audience, and it rates higher than The Voice. I can make a whole series of The Hit List for the cost of one episode of The Voice.
It should be a no-brainer internationally. The downside is music costs are a barrier internationally. We benefit in the U.K. from the BBC blanket, but it causes problems internationally. That should not stop you because you can still have success with tenacity, resilience, and belief. There are always workarounds, and I will not give up. We have five local productions of this format, including an 80-episode order in France where they added a dancing yeti called Elvis. I do not know why. We are now in active discussions in Australia and in the U.S. where we would produce it in the U.K. because it is way more economical for them. Our newest, latest, and next exciting format is The Fortune Hotel, which hopefully you all saw last year on ITV. It is a show where couples have to find out who has the money in their briefcases.
It's more of a, it's not really a whodunit; it's more like a who-got-it and psychological game show with quite a lot of humor in it. This title, we actually took out to distribution tender before we'd even made it. We'd got the commission, but we hadn't even shot anything. This was a real show of faith. Obviously, it's a zeitgeisty format, and a lot of the world were interested in that, but they believed enough in us to give us a really chunky advance. We kept the U.S. rights totally because we don't need a U.K. partner to make this one because it's on location. Season two has just finished filming. We've just delivered the episodes, and it has already triggered commercial opportunities in the U.K. We've got extra programming, a late checkout show. It's a sister show of Right to Be X.
We have a board game. We have a book. We have a digital game, which is a little bit like gambling. It makes me slightly uncomfortable, but I'm sure it will make loads of money. We have also already had two international series filming. That is even off the back of series one, eight episodes in Sweden. They shot that in Greece. This is our Lady Luck Bar. That is theirs in the Swedish and the Norwegian. Sweden's shot in Greece, and Norway actually did a celebrity version. Already new iterations of the format, and they shot in Italy. Ten territories are currently budgeting for their own series. We have very, we've got great reason to be very optimistic that there is lots of money in this format, and we own the whole thing. I just wanted to quickly sum up for you.
There is great opportunity in international scripted format sales for the right kind of producer with the right kind of idea. We are backed. I probably use the I a lot, which I do not mean to do, but we are backed by a great commercial team at STV that helps us make all this happen. There is a real eagerness to buy U.K. formats. We are still the world leaders. They always come to us first to see what is happening. There are now new financial advantages to making U.S. shows in the U.K. We can make shows for at least two-thirds of the cost that they can in the U.S. It is why things like Traitors is shot in a Scottish castle because they do the U.K. version and then they do the U.S. version, and they amortize the cost across the two versions. That is happening more and more.
We're also making original shows for the U.S. and the U.K. You just fly in the accents. We are now able to sell paper formats in other territories. The good news about the people in the Netherlands starting to get involved in these things and realizing the ROI on their idea is they're then more confident to buy things off paper. They don't just have to buy them off the local producers. They can buy them from me. International formats give you upstream revenues because it just keeps building and growing. It's those compound values. Tuesday's Child has five big formats at paid development stage at the moment that have international interest.
Before I hand you back to Lindsay, I just wanted to take you through our operating model. It's what sits underneath the 21 production companies in the group.
This isn't the sexy stuff, unfortunately. This is quite, you know, this is boring logistical, but it's important. It's an essential part of what makes STV Studios successful. Ours is what we describe as a production-first model. What does that mean? As Karen has said, we're deliberately and resolutely distribution neutral. Whenever we've got an idea, from the moment we have the idea through to putting the idea on screen, we're thinking about what's the best financial backing for that show? What's the best commercial arrangement we can put behind that show rather than having to play to the demands of a distributor? It's quite an unusual position for a group of our size to be in, and we're really, really proud of it. We play the market.
Beyond that, because we are production-focused, it means that we're not having to serve a whole group of international production companies around the globe. Some of our production groups have got what frankly is a bit of a back-to-front model at this point, where their U.K. production companies are so focused at having to keep that pipeline of shows to the international group that they're not able to focus on the big and the bold, the truly transformative shows, shows like The Fortune Hotel, then success can change the market. We are very focused on our model, and we think it's the right one. As you can see from the diagram, our operating model exists to foster the ideal creative environment. We give big and proper back-office support, the strategic leadership where needed, and we enable the circumstances for the production entities to deliver creative excellence.
In delivering creative excellence, they'll then maximize the commercial return. That's the heart of our belief. It should be neither one nor the other. It should be the two together. Get the right back-office operation, get the right support, then the best creative enterprise will in turn deliver substantial returns. Like any half-decent TV producer, and as Karen will attest, I was once a half-decent TV producer, I have left a little surprise to the end. It's a reveal, if you like. I'm really excited to confirm our latest investment. Joe Churchill, that's Joe, by the way. That's not actually his Tinder profile. That's his official corporate photograph. We might need to get work on that. Joe had a very successful career leading brand commissions at Channel 4.
He's just left to set up his new company, and he's going to set up his new company Fan Club with us at STV Studios. As viewing moves, as the chart shows really, as viewing moves, young viewers in particular, moving to platforms like YouTube and social media from more traditional viewing platforms, it's important that we have a way to get to that content opportunity and by extension to serve those viewers. Fan Club is going to be a creative agency and a production company focused on the growing market for branded channels and social media content. Joe's chosen STV. He's excited by the creative synergies that he believes he'll be able to get from the brilliant creatives working in our 21 existing labels.
We're excited about the access that eventually gives us to a new and growing sector of the market, the opportunity to make new shows for new buyers. As hopefully I demonstrated, STV Studios is a very different beast from the business I inherited six years ago. The exciting thing is we're just getting started. There's much more to come. Now feels like the right moment to be focusing on our plan to take us through to 2030. I believe that we've a clear path to becoming a GBP 200 million business over the next five years. We're going to get the best value from our existing entities for the investments we've already made.
The investment in Fan Club proves that when there's an interesting new opportunity out there, we want to be at the front of the queue talking to those new creatives, those new production entities saying, "Come and partner with us. We are your best backers, your best supporters." We think we're match fit for the changes and the challenges in the content market that we've been talking about today. We are confident in our ability to drive 25% of our revenue from the international market. We're already well on the way to reaching that target. What all of this boils down to is a belief that by focusing on the best creative, we in turn can offer the best return on investment to our shareholders. The two things go hand in hand.
Over the years and through the advertising cycle, STV has proven itself to be a highly cash-generative business.
Our cash conversion is very strong, and it only moves away from 100% as a result of timing in working capital items. We do not have lots of provisions on the balance sheet. We do not deficit finance programs. We believe that the strong cash generation of the business is set to continue into the future. Underpinning our cash generation, we have in place a new RCF that matures in 2030 and that gives us the capacity and flexibility to deliver our strategy. Interest payable under the RCF is not linked to leverage and has been agreed at a lower level than the previous facility, so the cost of money for STV has come down. In addition to the RCF, we use specialist production financing for certain larger productions where commissioners do not make stage payments to cash flow production activity.
These facilities are non-recourse to STV, and the cost of finance is met by the commissioner as part of the program budget. In certain circumstances, it's better for us to use those facilities as they reduce the working capital call on the group and do not incur incremental interest costs for the PLC. At the end of April, we had significant headroom in our RCF and a related leverage of around one times. Touching a little bit more on how we finance program production, the first point I'd make, as I've just mentioned, is that we don't deficit finance shows. What that means is that we don't take on balance sheet risk. The full program budget, including our production fee, is covered by third parties before we begin work.
Now, it's increasingly a bit of a patchwork quilt as to where the money comes from, particularly for scripted programming. You can see in the chart on the right on the slide there that in addition to the license fee from the commissioner, we can also receive distribution advances, tax credits, grants from creative bodies like Screen Scotland. The timing of when we receive cash from these various sources can differ. Some pay upfront, others stage payments, but some do not pay until the program has been finished. In the case of the tax credits, the final amounts due must be supported by statutory accounts to confirm the spend. They are often collected several months after the program has been delivered to the commissioner.
Now, we've successfully worked with commissioners in the past to mitigate the impact on STV's balance sheet of the cash flow of scripted and larger unscripted production activity. For larger budgets with the streamers, they will make stage payments that cover the cash requirements through the production process. Actually, as a result of that, we can sometimes be in a net cash positive position as a result. We've also used third-party production financing with institutions like Coutts and Bank of Montreal to cover cash due under the tax credits and to manage some of the complexities of making shows in other countries. In 2024, all of our scripted activity and our largest unscripted program was funded through these options, which means there were no drawdowns on our RCF and therefore no related interest costs associated with using the group's RCF.
Smaller unscripted programs, which tend to go from commissioning one to program delivery in six to nine months, are lower cost and are managed through existing cash resources in the RCF. It is worth noting that one of the positives of the labels acquired through the Greenbird deal was that all of those labels were cash positive with sufficient resources to meet their own production's cash needs. Cost savings and efficiencies are an ongoing part of how we run the business and will continue to be in the coming years. We are on track to deliver our target run rate of GBP 5 million in savings by the end of 2026 and are looking at ways in which we can make incremental savings over the period to 2030. There will definitely be more to come on this front.
We're also looking at ways in which we can use our existing resources, so our assets or people, to deliver our strategy to 2030. We can deliver parts of the strategy without incremental investment by further leveraging our assets and reprioritizing our teams. We'll continue to develop the player, acquire content, pivot news to digital, and do much of the development of the advanced advertising solution with existing resources. We do need to invest for growth in a couple of main areas to deliver our strategy, however, and we've balanced that investment with continuing to meet our pension obligations and maintaining our current progressive dividend policy.
On pensions, the recovery plan ends in October 2030, so no more contributions would be payable after that, essentially increasing the group's free cash flow by more than GBP 10 million a year from then and providing us with much more capital allocation optionality. We are working hard to accelerate the point when no more cash contributions are required into the schemes to bring that October 2030 date forward. The main areas where we will reinvest for growth are radio and studios, the latter being a continuation of the M&E strategy that we have adopted over recent years. Turning to radio first, I think our ambition, or hopefully our ambition here is clear. This is an incremental revenue line that will boost profits and margin in the medium term and fits really well alongside the core strengths of STV.
Our aim is to launch in the coming months and we'll invest around GBP 500,000 in pre-launch and setup costs, a modest amount for a business that will build to annual profits of GBP 2 million in five years. The currency with which radio advertising is sold is RADAR listening hours without ability to generate national revenues linked to having six months of RADAR audience data. The phasing of revenue that you see on the chart is a result of modest assumptions around our ability to generate regional and sponsorship revenues from launch, with national following thereafter. The initial investment is associated with securing the team, including the MD and other bits of operational setup. We'll use space in our head office in Glasgow for the studio and our marketing platform to promote the station, so essentially using existing resources where we can.
We anticipate a payback period of around two and a half years from launch, with a return on invested capital greater than our group WACC in 2027, that being the first full financial year we expect to be generating across all of regional, national, and sponsorship. In studios, we'll double the size of the business to GBP 200 million in revenue in 2030, generating a 10% margin, so GBP 20 million in operating profit. We've placed sensible bets thus far in terms of investment, with a total return on invested capital for the Greenbird group of 15% and Two Cities delivering a 25% return. We've agreements in place to increase our stakes in majority labels to 100% over the coming years. The consideration payable under those will be based on EBITDA in future years at pre-agreed multiples.
Our current estimate of the total cash flow over 2025 to 2027 is around GBP 14 million, of which GBP 2 million will be invested this year, including a modest amount for Fan Club announced this morning. All investment will be met through cash generation and existing bank facilities. Now, I won't dwell on this next slide, but this looks to sum up why investing in studios, a lower margin business, is good for long-term value creation. It is because of the valuation multiples that tend to be applied to businesses in the sector. The numbers in the charts are illustrative, but are intended to demonstrate the multiplier effect of studios' valuations on the overall valuation of the group. Rounding up, I'll leave you with these key messages. STV is a strongly cash-generative business and will continue to be.
We have the facilities and the headroom to deliver our strategy from existing resources. Capital allocation across reinvestment for growth, dividends, and pensions can be met in full, and we will maintain a leverage of 1-1.5 times throughout the next five years. Rufus, back to you.
Thank you very much, Lindsay. I am going to end, as I started, with a fast forward look to 2030. STV is Scotland's leading platform for audiences and advertisers with a high margin revenue growth from digital and audio. We are a global content powerhouse, and you can see that from the content we showed today, doubling studios' revenue to GBP 200 million at a 10% margin. We will continue to be highly cash-generative with a strong balance sheet, paying a progressive dividend. We are on track for no further defined benefit pension contributions.
STV will be a business that delivers for our audiences, customers, colleagues, and shareholders. Now, you have seen these targets already, but I thought you would like to see them again. We have two core businesses delivering a profit range of GBP 30 million-GBP 35 million. We have, as you have seen today, a great team in place, and we are really excited about the plans ahead. Now, it is time for questions. If you would not mind just saying who you are and where you are from so that everyone knows as well, that would be fab as well. If you put your hand up, we have a roving mic from Angela there, and we can go from there. And from Kirsten as well. We have roving mics on both sides. Roddy.
I will jump in. Yeah, Roddy Davidson from Singers. I mean, where to start?
Maybe a couple of questions on STV Studios, please. Just wondering, I mean, it's amazing to hear about Tuesday's Child and that very sort of passionate and hands-on approach to the business. When you look at other labels across the portfolio, David, are they, I mean, is there a sort of sharing of best practices? Does behavior vary a lot in terms of the sort of entrepreneurs behind those businesses?
I mean, every production business is different, and much of that difference stems from the personality of the creative leadership and the business leadership within the labels. What they all have in common is a signed-up ambition to deliver what I was talking about earlier. They want to make great shows, and they want those shows to have commercial value. They're all incentivized in different ways. They have different models, as we've shown.
Some are wholly owned companies, some are minority owned. What the leaders of those businesses have in common is a desire to make great shows, and for those great shows to make substantial commercial return for them, for us, for our shareholders. It was absolutely right to focus on the Tuesday's Child story because it is a phenomenal one. Across the 21 production entities, there are some equally exciting stories happening. We've got brilliant hit shows, both in the scripted and unscripted, and we've got an unrivaled group of creative talent. We're not making a part of the portfolio approach is that by having these 21 different entities, we're not tagging our future, attaching ourselves to just the creative and commercial success of one or two or three people or one or two or three labels.
We have this breadth of talent across the group, and I think that's part of the fundamental strength of the business.
Can I just ask about the sort of, I guess, the acquisition opportunities in that space? I mean, we read a lot about the market with independent production companies being under the pump, difficult environment, etc. I guess many of those are not necessarily the kind of businesses that you want to acquire. However, you've demonstrated and talked about today all that you can kind of bring to the party. You've got a track record of doing that and being a sort of good home for creative people. What is the dynamic and the availability in the marketplace at the moment? Can you give a sort of sense of the kind of competitive dynamic?
I thought it was interesting that Channel 4 are sort of popping their head above the parapet, whether that's going to make any difference.
There's a lot of stuff in there to cover. I would say that you all know that we're effectively in a post-consolidated world. In terms of the number of true indies out there that are of the kind of scale that groups like ours would look to as being interesting as an investment proposition, there aren't many of those left. Perhaps surprisingly, given how challenging the market is, the nature of the generational reality of producers getting older is that there's still a new generation of producers coming through who want to be able to get personal benefit from the commercial value of their ideas.
I don't think it's the case that there's not going to be a new generation of creatives coming through who want to launch indies, or certainly they'll want to continue to find ways to be rewarded commercially as well as creatively. We've gone on a journey, frankly. At the beginning, STV hadn't made these kind of investments for decades. It was really important to demonstrate success from the in-house group before we could kind of earn the right to make the investments. Because progressively the investments that we've made have begun to deliver returns, and we talk about the 2CT story for a reason, because it's an extraordinarily brilliant financial model apart from anything else in terms of the long-term return we're going to get from that relatively small investment.
As we've continued to deliver those successful investments, it's earned us the right, with the support of Rufus and Lindsay and the board, to think about more ambitious investments. Obviously, Greenbird was the largest investment we've made thus far. We're never going to be an ITV Studios or Banijay with kind of bottomless pockets to continue to add value to our bottom line simply by buying companies year after year after year. Ours is going to be a more targeted approach. The thing that sits at the heart of all of these discussions is, are they great creatives? Are they best-in-class creatives? It doesn't mean that they have to have just made a hit or even necessarily had a good two or three years, but are they good, respective creative talent? Genuinely, do we believe that we're the right home for them?
We don't want to buy companies for the sake of buying companies. We want them to buy into what we believe STV Studios can deliver to them, and we want to work with the best in class. Your last comment, or your question rather, around Channel 4, I mean, it's clearly a significant market intervention. They've said a little bit today about what they're planning to do, how that actually plays out in terms of the share of the market they're able to grab or to earn, what controls they put in place. Presumably, there will be significant controls they'll have to put in place to make sure that the in-house operation isn't favored over entities like our own. We're not afraid of competition.
I think any production group that looks for kind of regulatory control to be the thing that guarantees their future success, that's the wrong way to think. The thing that we focus on is, as I say, developing the best ideas, working with the best-in-class producers, and believing that that eventually will deliver significant commercial return. If we can continue with the kind of CAGR that we've shown over the last six years, we will absolutely get to that GBP 200 million number that we've headlined.
That GBP 200 million number assumes we're going to deliver that with our 22 labels. It was 21 last night, it's 22 labels now. Obviously, David gets a lot of incoming from people because of the state of the market at the moment and the experience of people who have had joining STV Studios.
I'd say on Channel 4 as well, I think they'll be under a lot of pressure from an in-house point of view to be in genres that we're probably... It's probably in... I'm not saying it's going to be the air fryer quadrant, but they're going to be in genres that aren't necessarily the genres we're competing in. Yeah.
There's a lot still to be explained about what their approach is going to be. We've taken a long time to talk about it. They have taken a very long time. The reality is, and this isn't just true of our business, it's true of any business that wants to effectively get into production for the first time in its history, that is not something that's going to deliver return or deliver significant market share in a year or two years or three years.
It's a long-term play for them. It doesn't make it the wrong play, but it's not like Channel 4 having an in-house operation is overnight going to change the nature of the market for groups like ours.
Thanks, Roddy. Hi, Jonathan.
Hi, it's Jonathan Barrett from Panmure. I've got just two questions. First one for yourself, David, if that's okay. As we look at the production market over the last few years, we've seen quite a lot of changing conditions. We've seen a lot of streaming operations launched in, shall we politely call it, a haphazard fashion. People pulling back, trying to change, trying to work out how to monetize. We've had the impact of mini recessions in the advertising market and macro hits. We've had the strikes as well. Has any of that changed the way that you look at the market, or is it the same basic fundamentals?
It does not change where you would see the business in terms of genres or the type of products that you are looking for.
I will let you into a secret. If my team gets sick of me hearing, "It is called show business for a reason," the other phrase that I repeat way too often is a sort of bastardisation of a Dickens quote about it being the best of times and the worst of times. It is a very different market for any production company, any production group than it was even a few years ago. I think as a production group, you have to be honest with yourself about that change in the market.
There are some producers, not the ones that work in our group, but there are some producers, some production companies that are still sort of hanging in there, so to speak, hoping that magically the world will turn back to being 2017 again and that they can rely on PSB commissions and that that in turn will generate global IP. That's not a model that really exists going forward. There's still great advantage about being based in the U.K. and having the guaranteed ownership of IP that that gives you, but to be simply focused on the old way of doing things would be wrong. It's a more difficult market in many ways. It's much more difficult to sell anything new. It's much more difficult once you've sold something new for it to be a hit and for it then to become a return or a possible returner.
The flip side of that is there are so many more buyers than there were even a few years ago. It's not just that we as a group won the right to make shows for these big international streamers. It's the fact that the international streamers themselves changed their focus. Apple, when it first launched, probably would not have been imagining that a big part of their global success, of the limited amount of commission they do, would come from U.K. commissions. You look at the biggest successful Apple dramas of the last 18 months and it's Criminal Record, our show, and it's Slow Horses. These are two of their biggest shows, and they're British-made shows with British writers, British freelance talent, and crucially, British companies owning those bits of IP.
That's a massively improved, increased opportunity than the opportunity that drama companies would previously have had in the U.K. market. What all of our production companies have in common, and I think this is the secret to success for the wider U.K. content providers, is not to be thinking that success in the U.K. is enough to build a business. That is not going to be how it is going forward. From moment one, you've got to be thinking about what are the commercial arrangements that underpin the production of our show, which becomes your bit of valuable IP, and what's the international rollout? Is it a streamer-style commission where effectively you're being paid a premium to not have control of your IP? It becomes their IP.
Is it something more akin to the traditional PSB model where you launch a show on ITV, BBC, Channel 4, and you have the opportunity to build value in that internationally? Yeah, I guess that's a long-winded way of saying there are significant challenges, but we still believe that there's a very good, and in our case, growing business to be built out of production.
Thank you. Question two, actually for Rufus. Just looking at the audience business, obviously the strategy here appears to be to absolutely squeeze the maximum out of the Scottish market. I don't know if there's anything else.
We didn't put those words on the slide, but yeah.
I don't know if there's anything else you might delve into in terms of other media in Scotland. That's not really the bulk of my question.
The rest is really around, is it attractive to go international or go national with the model in any way? Or is there a way that you'd consider it if there was a change in the marketplace or change to the way that it operates that you would then see as attractive? Or is this actually, does it just not make sense to extend?
If there's a fundamental change in the marketplace, you always look at it. One of the things that we all agree is that STV is a very, very powerful brand in Scotland. Everyone's heard of it. It reaches two-thirds of Scots every single month. The reason we're doubling down on that is because we can take that brand equity and reputation and expand new opportunities out of it. STV Player is distributed U.K.-wide, and that's a great thing to have.
We're not going to stop doing it, but the brand strength that we have, the relationships with advertisers that we have is unique in Scotland. We always think, take what you're really famous for, and if you can extend that into new opportunities, then that's what we should be focused on. Obviously, if the market was to fundamentally change, you look at that, but it feels like that is a very, very sensible and logical next step for us, as Bobby talked about with the way audio and radio complement each other. There are those consistent behaviors that we talked about earlier as well about Scots watch more commercial TV. Scots listen to more commercial radio, which will double down on the opportunities there.
The interesting thing, just coming back to the studios point as well, the interesting thing is that there are obviously the kind of streaming wars where people were spending absolutely crazy amounts of money post-COVID, but you can see that that is plateauing now and people are having to take a beat on that. What the streamers are becoming is they're just becoming more like TV. They're all going into live TV. One of the great things that STV have, we've got listed events, so we're going to have the World Cup next year. We've got the Women's Euros this year. We've got the Six Nations Rugby. We have all of those opportunities there.
I think that's what the streamers have actually realized is that some of the fundamentals around how you watch TV, shared experiences, bring stuff together is still a thing that is going to underlie all of this stuff moving forward. Over here.
Hi, I'm Alistair Young at Shaw. I've got a couple for Bobby on radio, please, which I think, as you say, sounds like an excellent natural fit. First off, if you could just give us a little bit of extra detail on what of the pre-existing assets you're actually going to be able to use to be able to sort of drive those very exciting potential margins. I think ad sales teams was mentioned. I know you're going to be based in Pacific Quay, but some more context there would be great.
And then second, a bit of a cheeky one is to when we might be able to hear a bit more about prospective launch dates and hosts and the like. Thanks very much.
Yeah, I think on the first point around what do we have already that we can use, I think one of the great attractions for us is the way that radio and technology has moved to become a very simple operation. We have already got space, and I think Lindsay touched on the assets we have got. We have got space, we have got connectivity, we have got distribution arrangements that we can easily make in place because we have got lots of fiber in and out of the building, so we have got a way to get this signal out there, whether it is to DAB or into online smart speakers, etc.
We've got a news team that makes not just news, but related programs that will transfer easily onto radio. We've got a weekly entertainment show that has movie premieres, Scotland events, and so on, which is the stuff of entertainment radio at the same time. I think the biggest assets are actually our commercial team, which have relationships with Scotland's advertisers on a one-to-one basis and are well-known in the agency community. I think as Danielle's slides show, when you combine media together with radio and TV as a multiplier, you have a 31% increase in productivity and efficiency by using those two. I think we're really well equipped to start this business using our existing assets, if you like. The other point that is slightly more intangible, but is nevertheless at the heart of this, is the relationship we have with people already.
The fact that so many people know who we are in Scotland. If you think about the way we build businesses every single day, all of the businesses, our business only works because the businesses it helps work. In other words, advertising works, and they come back time after time to build their businesses. The STV Player is a case in point, which did not exist a few years back. The vast majority of promotion and awareness for STV Player has been on our own platforms to talk about it, promote it, and really connect it with people. We can do exactly the same job on radio. I think that collection of assets is what we need. You do not need to buy a lot of stuff to make a radio station happen. My phone's been ringing off the hook today.
Graham has, I know, on people who are interested in either coming to work with us or partner with us to get this radio station going. I really think the sense for us, the opportunity is around the change in radio that is moving to syndicated services. You can understand why that is a model that will work in lots of cases. For Scotland, real opportunity to have a content-rich, Scotland-targeted offer that plays to those strengths that we have. On your second question about the plans and so on, we are at an early stage. We're moving quickly. I think all I can say is really that Graham Bryce, who's working on this, is flat out.
I think we will be releasing more information about the format, the music, the programmes, the presenters, the marketing, and so on, the launch dates for our advertisers, for our audiences, for our new listeners, but in due course, not quite at that stage yet. Thanks very much. Bobby's cracking the whip, though. Anyone else? Roddy again. I think then we've got one. Yeah. Thanks. It's Jonathan Helliwell at Progressive. I just want to go through a couple of the targets to make sure I'm understanding them clearly, the 2030 targets. The GBP 200 million of studios revenue is basically, you said, coming from the 21 labels you've got today. Twenty-two. Twenty-two today, 21 yesterday, plus the GBP 14 million, presumably plus the GBP 14 million you're expecting to invest organically. To consolidate the labels, yeah. That's right, it's not necessarily new M&A, it's more the consolidation.
It's consolidation of our existing portfolio.
Understood. Okay. And so that existing, that today's footprint is enough to get to GBP 200 million a year. Yeah, 100%. Perfect. Second thing is on the audience side, you're talking about growing the business at GDP, just to absolutely nail it down. You're talking about real GDP, sort of 2-3%, not nominal GDP, 5%. Would that ballpark be?
Come on, Lindsay.
So we're thinking nominal GDP 2-6% inflation, maybe given that to real GDP, somewhere between 0 and 3%. And then where you land in that range will be driven by many factors, none of which we control, but will then drive the operating margin.
The 0-3% is what you think?
In a conservative world, we're all hoping for more, aren't we? Yeah.
Perfect. Thank you.
Okay.
And then the final thing is that all of this assumes an ongoing GBP 5 million or whatever of central costs coming out below those divisional lines.
GBP 5 million on target for 2026, but as Lindsay talked about earlier, there will be more costs coming out of the business post 2026 as well.
Perfect. That is how it all adds up to GBP 35 million by 2026. Perfect. Thank you.
No problem. We have a question behind you as well, thank you.
Thank you. Phoebe Baker, Chelverton Asset Management. I would be interested to hear more about Fan Club. It feels like quite a different proposition to what you have at the moment. What is the competitive landscape like there? Are your potential clients currently making this stuff in-house? Also, is Joe coming on with existing clients, or is this something you are building from scratch together?
Good questions.
Joe has, as you would imagine, certain restrictive covenants in terms of what he can or cannot do. He is exit from Channel 4, but has an incredible set of relationships. One of the reasons that we are investing in Joe is we think he is best in class and will be able to benefit from those relationships while staying on the right side of his restrictive covenants. More generally, it feels like a really important area for us to be investing in. It will come as no news to anyone in this room that brands see a different relationship with content going forward than they did previously.
They're moving away from the traditional AFP model towards wanting to have complete control over the content themselves, often wanting to have their own channel and having a very particular strategy to what their relationship with their customers is, and by extension, what content they think would work for those customers. We think we need to be in this business. Now, we have been in this business to an extent. We've made shows for YouTube. We've made shows for brands. We have development work that's going on in the previously existing 21 production entities.
We think that that market has reached scale now where it makes sense to make a relatively low-risk bet on having a specialist production stroke creative agency stroke deliverer in this area, which isn't to mean that we want our existing production companies not to think about this at all. We think to have a company that's specifically looking at this area is really sensible. We think there are really one of the reasons Joe came with us is he looked at our group of creative talent and thought that there were some really interesting creative and commercial synergies to be driven by that.
I wouldn't necessarily think it was the best use of Two Cities' time or Todd's time or Primal's time to be thinking exclusively about this area, but to be able to connect with Fan Club and think about how they could then go out to market together feels like quite a clever strategy. To your point about how a company like Fan Club sits in this market, I think all of that is still to play for, frankly. There are some agencies that believe they'll be able to control this new market. There are some brands that think that they don't need agencies anymore because they're going to do it all themselves. I think probably the reality is that the new future will be designed in a quite messy way, and there will be some brands that take complete control. There'll be other brands that don't.
There'll be some that want a YouTube strategy, some that want a social strategy, some that want both. What all of those potential partners will have in common is they'll be looking for really exciting, grabby, talked-about content. That's where we come in. What Joe can do is take our brilliant producers and their brilliant ideas and match them with funders, backers, whether they be brands, whether they be social media channels, whoever's interested in owning content beyond the traditional broadcasters and streamers. It feels like a good thing to be doing.
I think, I mean, Joe's obviously got a great black book. He's worked with loads of brands at Channel 4, but we've obviously got amazing connections with Scottish brands as well.
I think one of the reasons why Joe was attracted to join our group was because of the relationships we've got with advertisers as well. That is why we're very excited.
One of the reasons that he thinks this is the right thing for him to do is that he's recognized that however successful Channel 4 have been at being able to take their brand, get value out of it by going to other brands and say, "Okay, together we can have a presence on YouTube," as you hinted, there are actually quite a few brands who are now saying, "We're not sure we need a traditional broadcaster to hold our hand in this way. We want to have a direct route to market." He's seen the writing on the wall, and we think he's worth backing.
Thank you.
No problem.
Roddy's having the best day of his life here. Roddy again.
Thanks. Just an anorak, I think. Just a couple of quick things. Really interested to hear about the scope for more commercial partnerships on top of, for example, the TV link-up with Premier Sports, what those might look like. Also interested in whether adding radio to the mix kind of changes that up. Secondly, just on the radio and apologies if I missed this, but is there scope for a sort of growth fund type approach? I mean, clearly, the funding dynamics of the growth fund are quite specific to TV, but I guess you've learned an awful lot about how you can encourage advertisers. Just interesting to sort of hear where that might work in practical terms.
Yeah. I mean, look, all of the above, really.
We have now got a combined linear VOD audio proposition, and we can look at that holistically for our advertisers. I think we are always trying to offer bespoke solutions to advertisers beyond the conventional thing. We have got a fantastic sales team. We are always looking at that. Increasingly, what brands want to do is that they want to do the unusual, the surprising, the things that no one else has done before. We have got a highly entrepreneurial team, a highly innovative team. We will do more of that. Anthony, who is part of our commercial team, is here today. I am sure he can give a bit more color to that. Anthony, why do you not go for it?
Not too much more color. That was pretty good, actually. Yeah. Look, the growth fund is there to help our advertisers, and we have had great success with it.
The holistic approach that Ruth was talking about is exactly how the sales team could approach this. There is going to be a solution put to our customers, new customers, that is going to encompass everything. It is not just going to be TV or TV, radio, etc. It will be a really exciting time. I think the sales team are desperate to get their hands on the new opportunity and take it to market.
There are a lot of phones ringing today.
The only other thing I would add, in true style of this, I will get back off the stage and say new company song. The growth fund is very significantly driven by, as you know well, Roddy, what we call the trading balance between us and ITV.
In Scotland, because of the commute time-weather combo, we can deliver national campaigns more efficiently, and it creates this money in the system. That money in the system can only be used for regional advertising and the giving of discounts. It cannot directly be taken out of that world and shifted over into audio. What it does is increase the flexibility for cross-selling across all packages. It will not be directly deliverable there, but it can help us with the group sale.
Thanks.
Thank you.
Hi. I have another one for David, please. You spoke about the virtuous cycle of where sort of success begets success. I am just wondering, to what extent, for example, Tuesday's Child is doing amazingly, to what extent is the success there? Does that help in conversations for different studios?
David showed me this, or someone related to David showed me this. He would not be showing me something else unless it was good. Do those conversations happen, and it helps you sort of grease the wheels a little bit earlier on than might otherwise have been the case?
It's a really good question. I think it does work. It does not necessarily work kind of as directly as Karen referencing a show that one of the other production entities is making or vice versa. There is a general sense of, wow, STV Studios as a group are doing big things, making big shows, have best-in-class development teams, have some really interesting companies. The halo effect that a successful show has goes well beyond the individual production company that makes it.
What you've realized over time is that we're lucky that like 99%, maybe 100% of the senior creators we have are nice people and know how to play nice, which is really important. Frankly, it's part of our kind of decision-making process about whether we want to be in business with them in the first place. I don't think it's true for all groups that there would be that shared sense of sharing each other's success stories. I think what our key creators have understood is that halo effect is genuinely and generally useful, and particularly in drama, frankly. We've only got three drama companies, but they're three drama companies that are all at the absolute peak of their powers.
Sarah Brown, who is the brilliant leader of STV Drama, our in-house operation, would be the first to admit that it was easier to sell The Witness, the first show that she has ever sold to Netflix, because of the fact that everyone at Netflix knew that this was part of the same group that was producing Criminal Record for Apple TV+, made Blue Lights for BBC One, and had this massive show, Amadeus, coming down the line for Sky and NBCUniversal. Apart from anything else, they know that there is a shared back office. In terms of sort of all the boring stuff that needs to happen, which commissions do spend quite a lot of time thinking about, it is not just about picking the best idea.
It's picking the best idea and thinking, "Do I believe that this company is capable of delivering this idea to budget and to the kind of creative potential that we see in it?" All of that helps. Yeah, it's definitely the case. There's a shared halo of success, but not necessarily something that we kind of say as soon as we go into a meeting. What's nice is often the commissioners will be making the connections themselves. You can be absolutely—Karen should probably cover her ears now—but you can be absolutely certain the success of The Fortune Hotel and Lego is something that adds value to the other unscripted companies in the group. Even if they're not shows that have been made by those companies, they think, "Well, hang on. STV Studios includes Tuesday's Child, and they make these great monolithic international successes.
Therefore, we think we can trust this other company more than we would another company.
Any more? No? Okay. Look, thank you very much for coming. We've also paid for some booze and nibbles outside. If you're able to stay, please come and join us for a drink. Thank you very much for your time this afternoon.