Only Sky can save digital TV
If you're a public broadcaster, every lunch is free
Comment Even at the second time of asking, digital TV has been a commercial flop. That's not surprising when taxpayer-subsidised broadcasters are given valuable spectrum. It's time Ofcom admitted this and gave Sky the chance to revitalise the market.
The UK, probably more than any other country in Europe, has a very healthy mix of consumer options for TV. However, 90 per cent of viewing is for the five main public service broadcaster (PSB) channels: BBC, ITV, Channel 4 and Five. The public still associates the digital TV platform (DTT) with these old analog channels - even though 85 per cent of the population views them via digital.
In October 2002 when Freeview was launched there were 22 channels of which only seven (Sky Travel, Sky Sports News, Sky News, TMF, The Hits, TV Travel Shop and QVC) were from non-PSB sources; whereas today there are 41 channels with only 12 being from non-PSB sources.
(Please note, I am including the state funded Community Channel and Teachers TV in the PSB sources. I am also including the jointly owned BBC and Virgin Media channels, UKTV History and Bright Ideas in the PSB source.)
Of the non-PSB channels, six fall into the "t-commerce" category (QVC, Thomas Cook TV, Ideal World, Smile TV, PriceDrop TV and Bid TV), two are music channels, TMF and The Hits, one is from Virgin Media, and three are from the Sky family.
Furthermore, for non-PSB owners it appears that life is really tough. The Disney-owned general entertainment based abc1 channel has been withdrawn; Emap has sold 50 per cent of all its TV business to the allegedly skint and needing a further public subsidy Channel 4.
It appears that it is very difficult to make a channel pay on the basis of advertising funding alone, especially when you are competing against the PSB for advertising spend. ITV plays on this point in presentations to the City: advertisers pay a premium for mass market audiences. Of course, it helps even more when the PSBers are gifted their spectrum and non-PSBers have to pay for their capacity.
Basically, over time more and more of the DTT capacity is being used by the PSBers and diversity is shrinking rather than growing on the platform.
Ofcom's answer to this is to put its head in the sand and instead ask questions about whether Channel 4 needs yet more state subsidy, when it is using allegedly scarce and incredibly valuable capacity to run channels like C4+1, E4+1 and F4+1. Also, whoever regulates the BBC allows them to bleat about budget cuts (while the actual licence fee increased) - while they are busy buying travel content company Lonely Planet and blowing millions on an fatally flawed internet distribution platform.
Switch over? Switch off
The real problem is that Ofcom is absolutely terrified that 15 per cent of digital refuseniks are going to kick up a tremendous fuss when their analogue tellies stop working over the next few years. Let's be perfectly honest and state the chances of them running out before digital switchover (DSO) and taking a DSat or Cable subscription are next to zero.
Ofcom and the BBC Trust are also really interested in rapidly pushing through plans for FreeSat, the DSat equivalent of Freeview on DTT. I've always been extremely baffled by this, especially when Sky offers an equivalent service which is fairly priced, but the recent furore in Whitby, which has piqued my interest but not hit the national press yet, provides a clue for the true motivation.
Basically, refarming of any spectrum is difficult - even playing with power levels and mast position will not give the same coverage as before. This could develop into a huge PR nightmare as digital switchover occurs, especially as a lot of channels will not be available outside of the main 80 DTT masts. DSat will be the only economic alternative for people suffering poor reception and the BBC does not want BSkyB to be seen saving the DSO.
People should also not forget this use of the DTT spectrum is Version 2. Version 1 was the bankrupt ONdigital financed by ITV. It should also not be forgotten that BSkyB wanted to be part of ONdigital, but was barred on competition grounds. ITV has obviously admitted defeat on payTV and nowadays seems to take a 100 per cent ad-funded model for all distribution channels including the internet.
However, Channel 4 is still confused: it sort of admitted that selling subscriptions for Film 4 was a big failure; it also seems to want to get out of the game of encrypting its other channels and therefore earning revenue from Sky; yet it is still trying to get consumers to pay for content on the internet.
It should also be remembered that for however much the PSBers whinge and whine, their past and continuing failures in PayTV are completely of their own making and the state subsidised channels have been cross-subsidising these failures for many a year.
In the long-term, we can disregard TopUpTV - which I believe is fatally flawed. TopUpTV requires a different kind of set top box, which receives the free to air Freeview transmissions as well as TopUpTV’s paid for service.
Even with the addition of Setanta content, which is the best shot in the arm for TopUpTV for many a year, I suspect TopUpTV will not be around in the medium term with its current subscription/technology mix.
The lessons to Ofcom are clear: the DTT platform is currently unhealthily dominated by PSBers, there is a huge barrier to entry to new content owners and there is already a flawed PayTV platform using the DTT spectrum, which is basically going nowhere fast.
Basically, I believe Sky is the last hope before the whole of the DTT platform becomes subsumed by the PSBers, which is the outcome that the BBC have wanted all along. This is the question Ofcom should be considering. Instead of wasting its time on preventing Sky's entry, it should be actively encouraging entry. ®
A longer version of this article first appeared on the Telebusillis blog.