To start a new section, hold down the apple+shift keys and click to release this object and type the section title in the box below. Ad funded vs paid for: where does the money come from? Almost one fifth of the companies in the Top 100 are advertising businesses, suggesting that the UK advertising sector is in rude health. Moreover our data shows profits growing in the advertising sector at a compound annual rate of 8 per cent over the last three years. However, online media owners are moving away from advertising as a core business model, towards transactional or online subscription revenue from consumers. The UK advertising sector accounts for eighteen of the top 100 media and entertainment companies in the UK. Their collective revenues are larger than film, music, video gaming, magazines and news publishing combined, and have grown 20 per cent since 2011. While the advertising market may be booming, business models based on advertising are increasingly challenging for owners of consumer-facing media, for several reasons: • measuring the advertising impact of traditional media (e.g. physical newspapers) is challenging compared to online equivalents, and its true value is hard to measure • brand advertisers are becoming more digital-first in terms of outlook and structure, making it harder for publishers and broadcasters to achieve desired rates for legacy advertising formats • the continual increase in the volume of inventory, growth in programmatic buying, the threat of ad-blocking and the perception of fraud risk are all driving down the value of digital ad space. As a result, some publishers that have built large online audiences by offering content for free are concluding that a business model based solely on digital advertising is unfeasible.Within our top 10 largest media companies, only ITV and Daily Mail General Trust (DMGT) derive a significant proportion of revenue from advertising, and 7 both have warned of ongoing volatility in their ad revenues for the period ahead. Rejecting advertising means embracing a customer-funded business model. Most consumer media sectors took the transactional approach when first going online, creating digital versions of their physical products and business models to download and own. This is still the dominant model today: in 2015, 61 per cent of total consumer spend on music, TV, film and video games in the UK was on physical or download- to-own products. Music is the most popular category for owned products, with download-to-own accounting for 76 per cent of total music sales.8 Media Metrics The state of UK media and entertainment 15