Freeview Moves In On Multi-Channel Sector – Merrill Lynch Long-Term Forecasts

Merrill is forecasting a 2.2% points growth of penetration for 2003, taking the DTV’s reach to 41.4% of UK homes. This is slightly below its previous forecast of 44.0%, released in July 2002. The long-term forecasts, through to 2010, have also all been revised downwards slightly since July, as shown.

UK Digital Television Penetration Forecasts
	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
New forecasts (January 2003)	24.7	25.9	31.7	38.9	42.3	39.2	41.4	43.2	46.4	49.6	52.6	55.2	56.8	58.0
Previous forecasts (July 2002)	24.7	25.9	32.3	38.9	42.4	41.1	44.0	47.6	50.6	53.2	55.3	57.2	58.3	59.3
Source: Merrill Lynch, January 2003

Freeview set to challenge cable The previous forecasts from Merrill showed BSkyB remaining dominant through to 2010, when it will have just under 8 million customers to cable’s 5.8 million (see BSkyB’s Lead In UK Pay-TV Market Extends – Merrill Lynch Long-Term Forecasts). The new figures paint a similar picture for Sky and cable, but now there is strong competition from digital terrestrial service Freeview.

By 2010, Freeview is predicted to have been taken by 5.9 million homes, surpassing cable’s 5.6 million; BSkyB is still forecast to reach around 7.9 million homes by this time.

Sky is on target to hit around 7.0 million subs this year, whilst cable’s customer base is currently in decline. ITC statistics show that cable TV subs dropped by 2.0% in Q3 2002 and this decline is thought to have continued through the year.

The broker is hoping that subscriber churn at the cable operators can be contained and stabilised by Q2 2003, now that NTL has finished its financial restructure and Telewest is on its way (see Telewest Agrees New £2.2bn Bank Lending Terms).

UK Television Platforms Subscribers Forecasts (000s Homes)
	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
Freeview (DTT)				25	75	900	1,500	2,100	2,800	3,550	4,300	4,900	5,400	5,900
BSkyB Digital		225	2,064	4,667	5,495	6,234	6,784	7,058	7,256	7,421	7,560	7,680	7,778	7,857
Cable Digital			146	870	1,977	2,170	2,743	3,369	3,823	4,328	4,721	5,081	5,360	5,558
DSL				9	12	12	15	75	439	766	1,052	1,296	1,393	1,492
Source: Merrill Lynch, January 2003

Growth rates An alternative analysis of the forecasts is to look at the growth rates of the main television platforms. As the chart below shows, Sky is currently building its customer base at over 10% per year, falling to an expected 8.8% growth this year. Cable, meanwhile, will show negative growth last year and, although positive, will be well below Sky’s rate this year.

But once NTL and Telewest get back on their feet financially and start marketing their services and attending to customer acquisition again, the picture should reverse, with cable’s growth outstripping BSkyB’s from 2004 through to 2010. An NTL/Telewest merger is largely expected at some point and this would increase their marketing power.

Outstripping the growth of both cable and BSkyB by far is digital terrestrial service Freeview. The service does not charge customers a subscription; they simply pay a one-off fee for a set-top box (see Freeview Shifts 300,000 Adapters In First Two Months).

The complete data from which these charts were drawn can be found UK Cable, Satellite & DTT Penetration Forecasts From Merrill Lynch – February 2003.