INSIGHTanalysis: Government’s DTV Target May Not Be So Distant
Pessimistic forecasts that the Government has no hope of meeting its digital TV penetration target may have to be reconsidered following the runaway success of digital terrestrial service, Freeview.
A joint report published by the Independent Television Commission (ITC) and the BBC on Friday said that penetration could reach 78% of UK homes by 2008. This is a lot closer to the Government’s 95% at 2010 target than previous forecasts from Merrill Lynch, which predict a penetration of just 58% by this time.
However, due to uncertainties over the success of Freeview at the time of the research, the report also indicates that reach could still be as low as 58% by 2008.
Key drivers Continued strong sales of Freeview boxes, an overall reduction in equipment costs and a revitalised cable sector, could combine to provide a second wind of digital interest in the UK.
Freeview is expected to have sold around 2.3 million units by the end of this year. Reports claim that Dixons is planning to buy one million boxes from manufacturers, ahead of an expected boom in sales at Christmas.
Cable operators, Telewest and NTL, have both been through a process of converting substantial debt into equity, during which most investment and marketing endeavours slowed or stopped completely. NTL has now completed this process and Telewest looks set to follow shortly. This should allow both groups to kick-start a new round of digital marketing and customer switch-over.
Added to this is a demographic shift in the UK’s TV population that will ultimately have a positive effect on the multi-channel (digital) sector. This comes from the fact that many children have now grown up in pay-TV (often BSkyB) homes and so are likely to see multi-channel, pay-TV services as a commonplace essential, rather than a non-essential luxury.
Merrill Lynch notes that 65% of teenagers have multi-channel TV, compared with just 50% of adults. When this generation moves into its own TV homes, it is therefore likely to carry along multi-channel services.
Outlook for targets The outlook from market-leader, BSkyB, is that its satellite subscriber base could eventually grow to ‘north of’ 10 million, with overall UK multi-channel penetration following the US model at around 80%-plus, according to analysts. Merrill has forecast that Sky would achieve 8.l million customers by 2010 and that the total multi-channel market would hit around 75% penetration.
Over time, Sky may also elect to introduce new, lower-price and niche packages to attract people that have traditionally fallen outside its core users. This could drive uptake even further.
The ITC/BBC report says that it is “unlikely that the Government’s criteria will be met to enable a nationwide switch-over in the early part of the 2006-2010 ‘target window’. However, the continued progress in line with the recommendations in the report suggests that 95% take-up could be achieved around the end of the decade.”
Policy push? This prognosis is based on a market model and does not account for Government policy initiatives, with could boost uptake further. The possibility of such initiatives was raised by culture secretary, Tessa Jowell, who, in response to the report, said: “Doomsayers may suggest we won’t meet the target. I would say to them that if the industry can make it this far on its own, anything is possible,” according to today’s Independent.
Potential policies could include the announcement of a definite analogue switch-off date, the mandating of digital decoders in new televisions and the growth of a ‘free’ satellite market, resulting from public service channels broadcasting ‘in the clear’ on the satellite platform.
In the light of these more positive forecasts and sector digital developments, Merrill Lynch is saying that its own forecasts may be conservative. On a more guarded note, analysts also point out that the initial surge in Freeview sales could mirror the experience at ITV Digital, where a strong start soon stagnated.
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