A new report by brokers Merrill Lynch predicts that the overall penetration of digital pay TV will rise from 24.7% in 1997 to 49% in 2005. Of this cable companies are likely to be the leaders with a predicted penetration of 21.5%, compared with 19.5% for DTH (direct to home, ie. satellite) and 8.25% for DTT (digital terrestrial television).
Merrill Lynch believes that Flextech is in a particularly strong position in the emerging digital TV industry as it will provide programmes across all three delivery platforms (digital satellite, digital cable and digital terrestrial).
In cable the broker recommends Cable & Wireless (C&W), Telewest and NTL for Accumulation, as each of these companies has the resources and infrastructure to provide pure Video On-Demand (films which are available on request from the viewer).
The result of the ITC’s recent pay TV debundling ruling (see ITC Recommends Smaller Channel Packages For Pay TV), according to Merrill Lynch, is that the stronger channels will become stronger and the weaker ones will weaken further. The report says that weak channels will see reduced carriage time and/or reduced fees over time, whilst strong channels will be able to increase pricing more aggressively.
For channel provider Flextech this is regarded as a fairly neutral development; what it might lose on niche channels such as Trouble and Bravo could be made up on the stronger ones like UK Gold and Living.
Merrill Lynch cites Channel One, Live TV and Carlton Food Network as amongst those channels which may be threatened by the debundling code.
BSkyB, whilst suffering an initial transitional ‘pain’ in the move from analogue to digital, is predicted to fair well in the digital marketplace, particularly as it will provide channels across all three delivery platforms. Merrill Lynch predicts that Sky will operate a 6-8 channel basic entry level package which should boost DTH and compete with terrestrial broadcasters, British Digital Broadcasting (BDB).
The report goes on to say that DTT will be most aided by the setting of an analogue cut-off date by the Government. This, along with the normal eight year cycle for the replacement of current television sets for DTT compatible ones, should ensure that DTT is successful in introducing itself alongside the more traditional pay TV platforms, cable and satellite.
BSkyB is planning to launch its digital satellite service in June; BDB’s digital terrestrial service is scheduled for the Autumn.
Merrill Lynch: 0171 772 2337
