In today’s harsh economic climate, national weather organizations offer governments around the world a welcome source of potential revenue, says James Close, Partner with Ernst & Young LLP (UK).
For many, catching the weather forecast has been an even more important daily ritual in recent months. From the storm-battered East Coast of the US, to the freezing winter in Europe and heat waves in Australia, the unpredictable nature of our climate has left weather forecasters very much in the spotlight.
But who funds these forecasts? And given the mounting fiscal pressure to reduce public spending, can governments afford to have a role?
Public entities and private weather vendors today provide a wide range of personalized services such as downloadable applications for skiers and windsurfers, and historical data for insurers that target both industries and private individuals. Such services are provided through various models of national meteorological services (NMS), which exist in varying degrees around the world.
For example, although Météo France and Météo Suisse are both national public bodies operating under a state ministry, they have commercialized some aspects of their business by selling services to industries and private individuals.
The lack of significant competition, coupled with the commercialization of certain services, has allowed both organizations to generate a comparatively high share of their revenue from sales; a success that leads to reduced state funding.
A prime competitive market, however, can be found in the US, where there are about 300 private commercial weather vendors in operation. They can all access the data collected by the US National Weather Service (NWS) for free — and therefore compete with it at the same time as using its information.
The level of competition in the private sector in the US is unparalleled — it has grown into a US$1b industry.
What should we make of government activities that compete with the private sector? The level of competition seems to affect the commercial revenue of the national organizations. Similarly, public sector information access affects the level of competition. As demonstrated by France and Switzerland, these organizations can do very well when there is little competition.
By contrast, the UK’s Met Office generates only 16% of its revenue from its paid services. The scenario is similar in Australia, where there are six private weather providers that have free access to its Bureau of Meteorology Information — the commercial revenue of which represents only 9.5% of its total budget. This is negligible in comparison to Switzerland, which has been market-driven since 1997 — 42% of Météo Suisse’s revenue is derived from its own sales.
With countries around the world seeking to rebalance their finances, it is evident that NMS must not be immune to the drive to place financial discipline and affordability at the heart of delivery. Nevertheless, the fact that NMS are underpinned by complex IT infrastructure that requires continuous investment is hardly ideal for government finance professionals looking to cut spending in a time of austerity.
To this end, it is perhaps not surprising that most European countries treat some of their information as a commodity used to generate short-term revenue.
With no catch-all solution available, the ability of governments to deploy different business models will determine the success of their attempts to combine public service provision with profit-making.
