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Insight Analysis: Digital Struggles

Insight Analysis: Digital Struggles

The UK Government is hoping to achieve a 95% penetration of overall digital television (DTV) by 2010, at which point it plans to cease broadcasting the analogue signal. Indeed, the intention is to cease the analogue signal sometime between 2006 and 2010 at the latest. However, according to recent growth and forecasts, even a 2010 date is unlikely to be achievable without leaving a substantial proportion of households without television.

The rate of take-up of digital services in the UK is falling and interest seems to be waning. The recent failure of ITV Digital to sustain itself has not helped either public or industry confidence in the enterprise. The inability to find a buyer for the ITV Digital business indicates that it was not an attractive proposition for investors, at least in the form that owners Carlton and Granada had developed it.

A Mediaedge:cia survey released this week claims that 29% of the UK population never intend to make the switch to DTV (see UK’s Interest In Digital TV Dwindles, According To Mediaedge:cia Survey). Resistance is greatest in the 65+ group, which accounts for a large proportion of the country’s households and 12% of the population. Furthermore, it is the younger viewers who are becoming less inclined to pay for DTV services and who increasingly think that its programming and services are of little value or attraction.

What is most significant about this survey is that it indicates a declining interest in and value of digital services to the public; what Mediaedge:cia refers to as a slowing in the organic growth of the market.

Penetration target hard to meet Given these shifts in public opinion and intention, Mediaedge:cia questions whether the Government’s target can be met. Digital TV penetration remains below 40%. Merrill Lynch predicts that penetration will only reach 73.8% by 2010; Informa Media Group reckons it will only be 63.8%.

UK Digital TV Forecasts 
         
  2002  2003  2005  2010 
Digital Cable Subscribers (000) 1,983 2,621 4,059 5,454
Digital Satellite Subscribers (000) 6,300 6,750 7,250 7,842
Digital-Terrestrial Homes (000) 1,000 1,100 1,300 1,800
DSL Subscribers (000) 51 98 308 1,141
Total Digital Homes 9,334 10,569 12,917 16,237
Total Household Penetration (%) 38.2 43.0 52.0 63.8
Source: Informa, May 2002 

Informa forecasts that Sky Digital will account for over half of all digital TV households by 2010, cable will account for just under 40%, leaving only a small share of the market for digital terrestrial (DTT). Informa ‘assumes that there is no viable model for subscription digital-terrestrial television’, though forecasts that 7% of all TV households will take free-to-air DTT signals by 2010.

Signal problems The rebirth of digital terrestrial television is not only being hampered by dwindling interest from the public, but also by poor signal strength. A report compiled by Logica on behalf of the Independent Television Commission (ITC) found that only half of UK homes will be able to receive digital via their existing aerials.

There are plans to boost the signal, but once again even these measures are deemed insufficient to meet the Government’s target of having 95% of the population switched over to digital before the analogue signal is turned off.

Poor reception problems are thought to have contributed to ITV Digital’s high churn rate – the proportion of customers leaving the service. Even before ITV Digital began to teeter on the brink of collapse, churn stood at around 25%; BSkyB’s churn, by comparison, is around 10%.

ITC chief executive, Patricia Hodgson, says that “customer loyalty is key to a prosperous future for digital. The priority now is to stabilise the market, engage consumers and make digital relevant to those thinking about making the switch.”

This may be a tall order if Mediaedge:cia’s opinion research is accurate.

Setbacks may only be a glitch Despite the question marks hanging over DTV in the UK, two recent reports have claimed that across Europe the platform will show good growth, the closure of ITV Digital and Spain’s Quiero notwithstanding.

Strategy Analytics says that digital terrestrial TV (DTT) will continue to play a ‘limited role’, aided by rising demand for free-to-air DTV converters. It forecasts that European DTV penetration will reach 73% by 2008, up from just 21% this year. This represents 122.2 million households, up from the current 33.0 million.

“After several months of turmoil and failed services, some observers have cast doubt on digital television’s future. However, Strategy Analytics concludes that the net impact of recent developments will be only a slight reduction in overall digital TV uptake during 2002,” says its report.

This optimistic outlook for European DTT mirrors the findings of the European Broadcasting Union, which says that new ventures will have learned from ITV Digital and Quiero to avoid direct competition with cable and satellite pay operators and to steer clear of the set-top box business.

European Digital TV Ownership Forecasts* 
                   
  2000  2001  2002  2003  2004  2005  2006  2007  2008 
Household Penetration (%) 12 16 21 27 34 43 53 63 73
No. of households (Millions) 18.9 25.8 33.0 42.8 54.9 70.0 87.0 104.8 122.2
*includes all digital platforms – terrestrial, satellite, cable, DSL and other 
                   
Source: Strategy Analytics, May 2002 

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