Digital Television

Digital Television

• Nearly nine out ten UK homes now have digital television, standing at 89.8% at end of Q2 2009,

according to Ofcom.

• Freeview remains ahead of BSkyB as the market leading digital TV platform, with the service now in

9.7 million homes.

• Merrill Lynch forecasts digital terrestrial television’s share of multichannel TV homes to continue to be

the market leader in the UK, with satellite being the second most popular option.

• Digital switchover began in October 2007 in Whitehaven, Cumbria, with the remainder of the Border

region completing the switch in 2008.

• All regions will have their analogue signal switched off on a region by region basis by 2012.

• Full digital conversion has now occured in seven European countries.

• The US switched off its analogue signal in June 2009.

Highlights

Platform Take-Up

The UK currently leads the world in terms of digital

TV penetration, with Ofcom claiming 89.8% of

households were already digital by the end of Q2

2009; see Table 1 overleaf.

Looking at the main household television set,

Ofcom claims digital terrestrial services remains the

number one choice with 37.6%; see Figure 1.

Across all 60 million television sets in the UK,

analogue terrestrial still has 19.8% of share; see

Figure 2. However this figure is declining rapidly,

having been at 49% one year ago. Every television

set around the home needs to be made digital

before switchover, otherwise they will no longer be

operational.

Of the TV sets that have already been made

digital, the majority are covered by digital terrestrial

television.

Ofcom states that 80% of all television sets had

converted to multichannel television by the end of

Q2 2009, which is up by 11 percentage points year

on year. Almost 70% of all secondary TV sets have

been converted, up by around 15 percentage points

in a year.

Sky

According to figures from Ofcom, BSkyB’s satellite

service sits at 8.9 million subscribers in Q2 2009;

see Table 1 overleaf.

Official figures released by Sky, meanwhile,

are slightly higher than those of Ofcom. The

broadcaster recorded net customer growth of

462,000 subscribers in the 12 months to June 2009,

taking its total figure to 9.4 million customers.

BSkyB has been hugely influential in converting subscribers from analogue to digital, with all of its subscribers

now receiving digital satellite. In addition, its Sky+ High Definition push and price cuts have boosted its

subscriber base. The service had 534,000 net additions since January 2009, reaching 1.3 million subscribers,

while Sky+ is now in 5.5 million households, or 58% of its customer base.

Sky plans to launch a new 3D channel in 2010, the first in the UK. Users of the Sky+ HD box will be able to

view the channel through special glasses and if they have a new “3D ready” TV set. The current retail price

of a Hyundai 3D-ready TV set is £2,500. However, the broadcaster hopes in time prices will come down to a

similar amount that consumers would be willing to pay for a standard HD plasma screen.

UK Digital TV Market

Digital Television

Brian Sullivan, managing director of Sky’s customer group, said: “3D is a genuinely ‘seeing is believing’

experience [and] next year we will make our HD boxes work even harder for customers by launching Europe’s

first 3D TV channel.”

Jeremy Darroch, chief executive of BSkyB, believes the company remains on course to hit its target of 10

million satellite TV subscribers by 2010, however he warned that Sky isn’t recession proof and said “looking

ahead, we expect the overall consumer environment to be challenging.”

Freesat

According to the latest estimates from Ofcom, there are 0.7 million free-to-view digital satellite homes in the

UK, an increase of around 200,000 from the previous quarter. This figure also includes viewers who are no

longer Sky subscribers but still receive the public service channels through their set-top box.

There are two free-to-view satellite television offerings in the UK, which allow access to digital TV to households

who may have been unable to access DTT due to the geography of the area. Freesat from Sky was launched

in October 2004, while BBC/ITV’s freesat was launched in July 2008.

Sky’s service currently offers more than 240 channels for a one-off £150 installation charge, while the BBC’s

service has 140 and includes free HD programming.

Nick Markham, Top Up TV chief executive, speaking at a Broadcast conference in February 2008, thinks that

the BBC/ITV competitor service will struggle to take off because Sky has already made the satellite business

its own.

He said: “Sky has spent years perfecting its service and made sure that every home with satellite TV had it

through Sky devices. There is no way it will just sit back and allow a new competitor to just come along and

take a slice of the market. If freesat does that, Sky will just undercut it on price.”

Digital Terrestrial Television

DTT, or Digital Terrestrial Television, has shown the greatest growth in recent years, with the platform offering

the cheapest way of making the transition to digital TV.

It has experienced strong take-up since its launch in October 2002 and has overtaken Sky to become the

leading provider of digital TV in the UK.

Since launch it has seen total sales of 46 million units, comprising almost 22 million IDTVs (Integrated Digital

Televisions) and over 24 million Freeview DTT set-top boxes. IDTVs have outsold set-top boxes since Q3

2007 and are likely to overtake the cumulative total of set-top box sales in 2009.

The total number of homes using DTT equipment

has now reached 9.9 million and the number of

homes using DTT on any set has reached 18.2

million, according to GfK/Ofcom; see Table 2 and

Figure 3.

Freeview’s appeal to first-time switchers and

existing digital viewers who want quality free-to-air

digital TV throughout their home is reflected in the

growth of Freeview equipment used for secondary

sets. The average home owns 2.4 TV sets, so there

are around 35 million secondary sets in the market.

By Q2 2009, around 24.3 million, or 70% of these

had been converted to multichannel using either

the Sky Multiroom service, a second cable box or a

Freeview receiver.

Freeview has launched a hard disk digital TV

recorder, called Freeview+ which it hopes will be in

12 million homes by 2012. The device is intended to replace VCRs, which will not work properly following

digital switchover and will include basic boxes, DVD recorders, DVD and VHS combination recorders and TVs

with Freeview+ built in.

Rob Farmer, Director of Marketing Communications at Freeview, said: “Freeview+ is the next chapter in our

story as the champion of free TV in the UK. It lets you record great programmes with no subscription, no

contract, no fuss. It’s the obvious choice for recording TV in the digital age.”

Not every UK household is able to access digital TV through Digital Terrestrial TV (DTT), with 27% of homes

not currently having access. The current level of digital access is at its maximum possible until switchover

enables signals to be broadcast more widely across the UK. According to Ofcom, gaps in current coverage will

be filled by transmitters converting to digital and the power levels of the signal will increase after switchover.

Cable

NTL:Telewest was rebranded as Virgin Media in February 2007, following the merger of the two cable giants in

2006 and their subsequent takeover of Virgin Mobile, allowing the media giant to offer quadruple-play options

for the first time in the UK.

The cable service passes 12 million homes in the UK, or 50% of the population, offering VoD, a PVR, IPTV

services, HD and telephony services.

Ofcom’s latest figures for Q2 2009 state that the number of digital cable subscribers fell slightly on the previous

quarter by 0.7 % points, with total subscribers of over 3.1 million.

Virgin Media, however, puts this figure higher, reporting 3.7 million subscribers in Q2 2009. Its digital video

recorder service, V+, added 56,600 subscribers in Q2 to reach 668,500 in total, or 18% of its subscriber

base.

Digital Television

Market Forecasts

Merrill Lynch’s long-term TV penetration forecast

shows that by 2018, it expects pay and free satellite

services (DTH – Direct To Home) to reach 39.0% of

TV homes, down from 40.2% in 2009.

Digital terrestrial television (DTT) is currently

at 43.7% multichannel homes penetration but is

forecast to show a slight growth to 44.2% by 2017;

see Table 3.

The proportion of UK TV homes receiving analogue

broadcast signals is forecast by Merrill Lynch to

dwindle from 7.1% in 2009 to 0.1% by 2012, and

then down to zero at the completion of switchover.

Freeview is expected to remain the platform

of choice over the next few years, with homes

expected to increase from 10 million in 2009 to 11.1

million in 2018, as shown in Figure 4.

Satellite penetration will also increase from nearly nine million in 2009 to 9.6 million by 2018; see Table 4.

Looking Forward

There is no doubt that the key driver of digital uptake over the past few years has been Freeview, and interplatform

competition has been encouraged as a result.

In his review of the BBC’s digital services commissioned by the Government, Patrick Barwise of the London

Business School, claims that while the BBC’s digital services contribution to the success of Freeview has

been modest and their contribution to the take-up of digital pay-TV minimal, continuing digital penetration

seems likely. This, he says, will be driven by BSkyB (including Freesat) and Freeview, potentially supported

by some growth in cable penetration through conversion of the remaining analogue cable homes to digital.

New forms of competition are emerging in the digital TV market, using broadband as the distribution channel.

While starting from a low base, they have the potential to dramatically change the way TV is viewed in the

future.

Whether or not and how the emergence of broadband as a distribution platform will change the balance of

power remains to be seen.

Despite likely developments in the market, Freeview and Sky will continue to be market leaders for the

foreseeable future as the market continues to grow towards each UK region’s switchover date.

Analogue Switch-Off

Digital switchover is now in full flow in the UK. It began with Whitehaven and the surrounding area of Cumbria

switching to digital only signals in October 2007, with the rest of the UK facing switchover on a region-byregion

basis until completion in 2012.

At present, digital terrestrial signals reach 73% of all UK households. Due to the already crowded nature of

the analogue UHF spectrum, it is not possible to extend DTT coverage significantly beyond this level without

first switching off the analogue transmissions.

Digital UK, the independent, non-profit organisation that was set up to co-ordinate the UK’s move to digital,

put a heavy emphasis on extracting research from each step of the complex process of switching Whitehaven,

as its demographic breakdown essentially represents ‘1,000th of the UK’.

Following Whitehaven, the remaining Border

region encompassing the Scottish borders as well

as Cumbria and the Isle of Man were switched off

during 2008 and early 2009, while the West Country

was also switched off in 2009. Granada is going to

be switched off by the end of 2009 and Wales is

currently in the process of being switched off, and

this will be completed in 2010.

The process then continues as outlined in Table 5

with some regions making the final switch in 2012.

Areas will have 100% digital penetration on

switchover date. According to Ofcom: “those who

do not choose to adopt digital TV after switchover

will churn out of the base of TV homes and

therefore it is a truism that digital TV penetration in

any given region will trend to 100% at the point of

switchover.”

At a recent MediaTel Group “Future of TV” seminar,

panellist and media journalist Ray Snoddy, stated

that he did not believe switchover will greatly

alter current audience behaviour. “Where is the

revolution in viewing behaviour as a result of all

the old age pensioners being bullied into getting

digital television?” he questioned. “I don’t know the

answer. Maybe analogue switch off is not such a

big deal and will not actually tear up the roots of

British broadcasting after all.”

Speaking at the Westminster Media Forum, Jon Zeff, head of broadcast policy division at DCMS, stated that

there are three reasons for switchover. The first is greater access and choice. Currently, only three quarters

of the population can access Freeview, but by switching off the analogue signal it frees up spectrum, thereby

allowing more people to access it. In the space it takes to occupy one analogue signal, you can get six digital

channels.

Secondly, it creates possibilities for new services and new technological developments, as the freed up space

on the spectrum can also be used for more television channels, HDTV, mobile TV or new wireless broadband

networks.

Digital Television

Finally it is much more efficient to switch the signal off, as currently broadcasters have to simulcast in both

analogue and digital.

Freed Spectrum

In order to decide who will obtain the freed frequency following the analogue switch-off, Ofcom launched

a digital dividend review, to ensure that the spectrum is spread fairly. Greg Bensberg, financial director of

Ofcom, states that the main aim is to maximise the benefit for the UK that the spectrum offers.

Freeview is taking some of the freed spectrum for high definition channels. Viewers using new receiving

equipment should be able to get up to four new high definition channels as digital switchover is completed

in the UK in 2012, with the first three available as switchover takes place in the Granada and subsequent

regions from 2009.

Ofcom says the upgrade can take place without the loss of existing television services currently available

to viewers on DTT. The watchdog believes that the process will deliver major benefits for viewers and

broadcasters, with viewers able to access an array of new channels and services through their television

aerials and new HD set-top boxes, and broadcasters able to deliver a greater range of services.

12

Digital Television

Global Outlook

The UK is not the only country switching off the analogue signal; countries across Europe as well as the US

have also set target years for switchover with some already completed.

Europe

In Europe, seven countries have completed digital switchover: Andorra, Finland, Germany, Luxembourg, the

Netherlands, Sweden and Switzerland.

The majority of these countries only had a low penetration of households relying on the terrestrial platform for

their primary television reception but this wasn’t the case for Finland and Sweden.

A further eight countries, including the UK, have begun the analogue switch-off process: Austria, Belgium,

Czech Republic, France, Italy, Norway, Spain, and the UK.

US

The US switched off their analogue signal on Friday 12 June 2009. In a different approach to the UK, the US

decided to go for a blanket switchoff, with the whole country switching at that point.

US television viewers were bombarded with a series of adverts warning them that the analogue signal would be

switched off on that date. The adverts urged them to buy converter boxes if they did not want to lose reception,

creating a steep increase in demand for both boxes and TVs. But many people remained confused by the

challenge of switching to digital, resulting in around one million homes facing a blank screen.

It is estimated that the cost to the US government was approximately $2bn, in order to smooth the transition.

Coupons worth $40 were sent to around 60 million households, to help cover the cost of the conversion.

Asia Pacific

Over the next few years, Asia’s digital TV market is expected to continue to show significant growth, according

to Informa Telecom & Media’s report, Asia Pacific TV.

Adam Thomas, Media Research Manager, Informa Telecoms & Media, stated: “At end-2014, the Asia Pacific

region will have more than 250 million digital homes, more than double the end-2008 figure.

Asia Pacific countries continue to offer a range of attractive opportunities for international TV players and

investors. The upgrade of analogue to digital continues to make steady progress. But with IPTV making some

inroads in the region, there is evidence of cable now looking to upgrade with greater urgency.

Emerging giants such as China and India are rich with potential for those with the requisite information. An

already positive environment will only improve, with a period of extensive merger and acquisition activity

Quick Glossary of Terms

DTV – ‘Digital Television’: with digital TV, sound and pictures from the broadcaster are converted into ‘bits’

of information and sent through an aerial, satellite, telephone line or cable. This digital signal is then turned

back into sound and pictures by a digital box or a digital television set. This offers new ways to experience TV:

extra TV channels as standard, improved picture quality and new features, including on-screen TV listings,

true widescreen picture and red-button interactivity.

DTT – ‘Digital Terrestrial Television’: digital television which is delivered via a normal rooftop aerial.

DTH – ‘Direct to Home’: Satellite transmissions received into the home via a dish aerial, as distinct from

satellite transmissions relayed via a cable system.

ADSL – ‘Asymmetric Digital Subscriber Line’: is a technology for transmitting digital information at high

bandwidth on conventional phone lines. ADSL is asymmetric in that it uses most of the channel to transmit

downstream to the user and only a small part to receive information from the user.

DSL – ‘Digital Subscriber Line’: is a technology for transmitting digital information at high bandwidth on

conventional phone lines.

IDTV – An Integrated Digital Television (IDTV or iDTV) set is a television set has a built in digital tuner, doing

away with the need for a set top box.

Analogue – Historical mode of transmission, uses standard wave to transmit television services