Digital TV is well on its way, but what is it all about and why is it
important for marketers?
Andy Fry reports
The phrase ‘digital television’ has the sort of sedative properties more
usually associated with party political broadcasts. But a subject that
can inspire a seismic shift in the activities of Europe’s largest media
groups is one that the UK marketing fraternity must quickly wake up to.
The key point to grasp in all this is that digital technology will
significantly increase the number of television channels that we can
receive. In addition to a basic programming proposition, we will be able
to use the tube to shop, bank, gamble, play games, buy tickets and
access the Internet. This is true for cable, satellite and terrestrial
So, for example, Rupert Murdoch’s satellite service, British Sky
Broadcasting, intends to beam around 200 separate channels into UK homes
from autumn 1997. At the same time, the BBC, ITV, Channel 4 and Channel
5 have been guaranteed the right to broadcast additional services over
digital terrestrial networks, to be up and running by mid-1998.
Elsewhere, numerous advertisers and their agencies have participated in
interactive trials conducted by BT and cable companies.
Much of the UK debate has focused on BSkyB. Despite Sky’s vast
investment in the satellite television market, Murdoch’s close ties with
Margaret Thatcher have ensured that his activities continue to draw a
barrage of criticism.
Critics have two main complaints. The first is that Sky repeatedly
outbids rivals for sports rights, denying the likes of Premier League
soccer to those who do not have satellite decoding equipment. The second
is that Sky is close to developing a new set-top decoding box which will
be needed to access the array of channels available in the new digital
Although there is nothing to stop the BBC, Granada, Carlton or MAI from
building boxes, the cost is, in reality, prohibitive. This raises the
spectre of Murdoch acting as the digital gatekeeper, summarily
dismissing services that belong to rivals. Sky chief executive Sam
Chisholm hotly denies the accusation, pointing out that the current Sky
package of 40 channels contains only 11 of Sky’s own services.
Those who view Murdoch as the bogeyman underestimate the key roles
played by rights holders and alternative technology platforms.
Repeatedly, he must compromise in his bid for expansion, most recently
in Asia where Star Sports was forced by market prices to form a joint
venture with Disney’s sports network, ESPN.
Equally, Murdoch’s long-term grip on the European market will depend on
his ability to accommodate the likes of Disney, Microsoft, Leo Kirch and
BT (now a News Corporation shareholder).
Bill Sinrich, senior vice-president of sports producer Trans World
International, believes there are great opportunities for sports rights
holders as ‘the likes of Murdoch and Leo Kirch link with cash-rich
players such as Disney to create sports programming for mature and
emerging markets’. With rights to sports already commanding vast fees,
he believes that ‘BT and the cable companies will also be in the market
to acquire rights’.
The issue of digital decoding has had spectacular implications for
Europe’s pay-TV heavyweights, which have formed and reformed alliances.
Initially, Sky worked on decoding technology with France’s Canal+ and
Germany’s Bertelsmann. A rival system was being developed by Germany’s
other major player, KirchGruppe.
Cracks within the Sky alliance appeared early this summer, leading Sky
to defect to the Kirch side - in the process taking a 49% stake in
Kirch’s digital platform, DF1. When Bertelsmann also sheepishly switched
sides, an infuriated Canal+ struck back by acquiring Europe’s only other
major pay-TV player, Nethold, for dollars 2bn (pounds 1.3bn). This gives
Canal+ a dominant position in France, Spain, Benelux, Scandinavia and
Paying the price
While such deals demonstrate the importance that pay-TV operators attach
to the digital platform, it begs the next question: why should anyone
pay pounds 300 to pounds 500 for the decoder ?
Obviously the programme proposition must be strong, which is why sports
rights have escalated in price worldwide. In the case of the UK, it was
vital for Murdoch’s Sky to win the rights to Premier League football,
not just to keep his analogue satellite operation running, but also to
prepare for digital. He also made the highest bid for the rights to
future Olympics, but ran up against the International Olympic
Committee’s policy of maximising audiences via free-to-air broadcasters.
That setback aside, Murdoch has made it clear that sports rights are the
‘battering ram’ that will drive his pay-TV operations worldwide. Sport
encourages the acquisition of new technology, while movies and other
incremental services act as hooks to prevent subscriber fallout.
Assuming that sports can drive the uptake of digital decoding systems,
how quickly will they replace existing analogue services? Digital
television analyst CDG predicts that the UK will be one of the fastest
entrants to the digital market and that Europe as a whole will have 50%
penetration by 2005.
And what will we have on our 200 digital channels? Sport and movies are
obviously key ingredients, but not in the way we are used to.
A more important use of the technology is active in France and Italy,
where another Kirch-backed broadcaster, Telepiu, has a digital platform
called DSTV. This season it started broadcasting pay-per-view (PPV)
football. Subject to certain restrictions, this allows fans to call up
and watch any live game being played.
Dieter Hahn, who is managing director of DF1’s sports service DSF, says:
‘Five simultaneous views of a race, or all matches of the national
football league to choose from, will give viewers a new dimension of
access to their sports. This will increase consumers’ acceptance of pay-
TV and PPV.’ It will also, claims Hahn, make it even more difficult for
advertiser-funded channels to win the battle for sports rights.
The implications for movie watching are similar. The concept of Near
Video On Demand (NVOD) becomes a reality when numerous different digital
channels can be used to screen the same film at staggered start times.
But what of the rest of those 200 channels? It is already clear from
analogue satellite and cable (with a mere 50 channels) that original
production budgets will be minimal in the digital environment.
One way round this is to amortise production costs by repackaging the
same output for the global market. This is the path already being taken
by US media groups such as Disney, Time Warner and Viacom. Then there
are repeat channels with the added twist that individual transactions
may soon be possible.
Testing the waters
‘We’re not far from the day when you could pay 50p for last night’s
EastEnders or pounds 1 for tomorrow’s,’ says Channel 5 chief executive
David Elstein. In his opinion, the viewer’s willingness to spend money
on television has barely been tested. ‘People spend 70% of their leisure
time on television, but only 10% of their leisure budget,’ he says.
If advertisers are wondering where they fit in, then it is important for
them to develop a clear view of what the new market means. ‘Digital and
pay-TV are different concepts,’ says Peter Eklund, director of Milan-
based Media Partners. ‘Those who don’t understand that will pay dearly.’
Eklund was formerly at Nethold which made the transactional
possibilities of digital television a priority.
Although the days of mass market advertising around sports and movies
are under threat from pay-TV, what is coming instead is a four-tier
opportunity via the television set.
The first tier is good old-fashioned, advertiser-funded free television,
which will continue to drive high-quality domestic production in areas
like drama and entertainment. Who says so? Well, Murdoch for one, who
expects broadcast networks to be the locomotive of production. Carlton
Communications chairman Michael Green agrees, describing terrestrial
television as a ‘dynamo’ not a ‘dinosaur’.
The second tier is digital pay-TV, which will dominate high profile
sports programmes like the Premier League and one-off PPV events like
the Bruno versus Tyson fight. Even here, advertisers and sponsors will,
if shrewd enough, find ways to access some sport. Not only is there
regulatory protection for listed events, but there are times when pay-TV
will make more out of selling its rights to free TV than hoarding them.
The third tier is business transactional television, which will offer
new distribution outlets to advertisers. This opportunity was recently
offered to Barclays Bank by Sky, which proposed that the high street
bank should have free access to launch a home banking service in return
for subsidising the cost of receiving equipment. Barclays rejected the
offer, concluding that it was not viable - but this should not be seen
as a definitive condemnation of the concept’s value.
The final tier of expansion will see marketers entering the production
arena. The proposed changes to the Independent Television Commission’s
sponsorship code are a recognition that advertiser money will be needed
to make digital TV viable, and that greater flexibility in the
regulations will be required.
Indications of the way the market is moving are to be seen in numerous
areas. Nike opening a television production arm, Coca-Cola committing
half its annual marketing budget to the Olympics and US film studio
Regency buying a stake in shoe manufacturer Puma all show that strict
definitions of core business have been modified.
If spot advertisers find themselves having to share the digital future
with pay-TV money, then they can console themselves that such investment
is driving access to the highly targeted interactive services they claim
Boxing clever with DTT
In October, the ITC advertised licences to operate digital terrestrial
television (DTT) multiplexes. It declared that these were the first of
their kind in the world. Channel 5 chief executive David Elstein
dismissed DTT as ‘a pointless, dead-end technology’.
Under the scheme, there are six multiplexes, two of which are reserved
for terrestrial TV operators. These will simulcast their existing
analogue channels and have extra capacity for new services. The
remaining four have attracted little interest, although names like
Virgin are expected to be in the ring by the deadline of January 31. The
DTT network is expected to be operational in mid-1998.
DTT will offer full national coverage. However, it needs a set-top
decoder. BSkyB’s digital satellite service, complete with decoder, will
already be up and running when DTT rolls out. Critics claim no-one will
buy a box for DTT instead of the satellite box. The only option would be
for DTT broadcasters to hitch a lift on the Sky box.
Elstein’s comments are predictable, given that analogue C5 will regard
any expansion of the terrestrial market as competition to its own
service. However, Granada has also indicated that it is not overly
concerned with DTT by going the satellite route with GSkyB.
More positively, the BBC will broadcast BBC 1 and BBC 2 in widescreen on
DTT as well as launching a 24-hour news service and interactive
channels. Likewise, Carlton Communications’ chairman Michael Green has
thrown his weight behind the DTT technology, describing digital as a
‘boost to our industry as a whole’.