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.
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 (see NTL Emerges From Bankruptcy) and Telewest looks set to follow shortly (see Telewest Agrees New £2.2bn Bank Lending Terms). 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 (see INSIGHTanalysis: BBC’s Exit From Carriage Deal Will Not Hurt Sky).
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.
The analogue switch-off Hitting the 95% penetration target is all good and well, but is the target itself of any real significance? The Government is keen to switch to digital partly because of the positive associations of an advance toward the ‘white heat’ of technology, but perhaps more significantly because it can then sell off much of the analogue spectrum to communications companies. For these reasons, the Government has offered broadcasters a digital dividend for converting viewers and there has been much talk of narrowing a ‘digital divide’ in the UK television population.
However, what is rarely mentioned is that much of the equipment in UK homes – older and portable TV sets, video recorders and so on – is designed only to receive an analogue signal. Whilst Freeview boxes can be wired through conventional video recorders and the signals can also be distributed from one set-top box to a number of TV sets in a home, this requires further equipment.
The decision by the Government to switch off an analogue signal which huge (and rising) volumes of electronic equipment rely on, ought not to be taken lightly. From this perspective, the penetration of digital homes is only a partial factor in the termination of the analogue broadcast.