Switching Off
David Evans, director of Continental Research, discusses how the impending digital switchover will effect UK households, and the potential problems that lie ahead for the terrestrial television channels…
Forget White City, Gray’s Inn Road, Horseferry Road, Long Acre or Osterley, the most exciting place in British broadcasting is the media hotbed of Cumbria and the Scottish Borders. The eyes of the media will be focused on this area of Britain that has the (dubious) privilege to be the first area to encounter analogue switch off, currently scheduled for 2008. What happens here will set the tone for the rest of the country, so all parties will be eagerly waiting to see what the outcome of switch off here will be.
Continental Research’s latest Digital TV report shows that multi-channel homes have significantly increased from 43% of total TV homes in 2002 to the current level of 74%. This growth has been fuelled in recent years by the extraordinary and unexpected rise of Freeview. In simple terms, this means that only one in four homes are still solely viewing TV in analogue form and will have to switch before the plug is pulled on analogue transmission. As these homes are, by and large, older than multi-channel homes, the viewing behaviour of many will remain consistent even after switch off due to long-standing habits and an aversion to technology.
A bigger threat to the terrestrial channels, especially the commercial ones, will be the impact of switch off upon second set viewing. At present, around 12% of all TV viewing is via second/third sets in the home with the vast majority of the viewing being analogue. Amongst adults aged 16-24, this increases to almost 20% of all viewing.
Post switch off, many households will have several TVs in home that will be unable to receive digital signals even if the main set has that ability. In terms of the equipment, there are several possible implications of this. One possible implication is that sales of Freeview receivers go through the roof, especially as some currently available are no bigger than a USB drive. Another is that parents will be pestered by their offspring to buy the latest flat-screen TV with a built-in digital tuner. Or, several elderly portable sets will be pensioned off to the brown goods equivalent of Valhalla.
Within this situation, there is a clear opportunity for both Sky and the cable companies. At the moment, multi-room subscription costs are a major barrier to entry for subscribers who feel that the £10 amount per month (per room) is too big a price to pay. In the complex world of multi-channel revenue calculations, I am sure that accountants are looking at the effect of offering free multi-room subscriptions to subscribers for two reasons.
Firstly, it will be a major reducer to churn, as the cost of switching will increase. Secondly, as viewing to cable/satellite channels will increase, operators can point to the fact that the channels will need less money from the platforms due to the increase in advertising revenue from increased audiences (especially as second set viewing skews younger than main set viewing).
So those with most to fear from this outcome must be the terrestrial channels, who could see their “monopoly” upon second set viewing eroded. Therefore, the necessity of a strong portfolio will increase even further once switch off takes place. The success enjoyed by ITV2 (X factor), BBC Three (Torchwood) and E4 (Big Brother) show how these channels are at the forefront of the channels broadcasting strategy at present, and this is only going to grow as the switch off creeps ever closer.