OFFdigital 

1 Dec 2001 0 tbs.pm/1686 Article text released under the Creative Commons Attribution license Media copyrighted Report an error in this article

In October, it was reported that shareholders of Carlton Communications were pressuring management to sell or close ITV Digital, the subscription service provider for Digital Terrestrial Television.

Since that report came out, the media world, the business world, internet mailing lists and forums and the analyst community have been following developments with great interest, more interest than perhaps had ever been shown in ITV Digital before.

ITV Digital

On the 25th October, the all-important figures for ITV Digital were announced. Subscriber figures had managed to reach their 1.2 million subscriber target, but the churn rate, the turnover of people joining and leaving the service, was still incredibly high at over 23%.

By this time, the analyst community, which advises both investors and the corporate world had made up its mind that for the benefit of both Carlton Communications and Granada Media, that ITV Digital should be closed.

Now lets stop and think about that for a moment. If ITV Digital were to close, it would be the biggest media industry debacle since the BSB affair of the late 1980’s and early 1990’s.

Even in the beginning of the ONdigital/Sky Digital battle for subscribers, opinion was that this would be like the old BSB/Sky story and that probably Sky would win out.

Both providers sought to distance themselves from any similarities, by pointing out that they were on 2 different platforms, not like the BSB/Sky battle, which was on the same platform – analogue satellite.

But whether they wanted to admit it or not, there were more similarities between the two battles than differences.

For a start, both providers had their own equipment, just like Sky and BSB before. There was talk in the early stages of both providers using the same box, but they couldn’t get it together.

Number of available channels was another issue. Only about 60 channels were available in total with On/ITV Digital, whilst Sky was offering more than 300.

When BSB and Sky went at it in the 90s, BSB were offering 5 channels of their own, Sky was offering 4 of their own, but another 3 channels were also available on the same box, making 7 in total, and Sky promised more to come – something BSB couldn’t.

So, should ITV Digital actually just shut up shop? From a business perspective, it actually makes a lot of sense. The most conservative estimate I’ve seen on subscriber numbers before breakeven can happen is around 1.67 million subscribers.

With a churn rate of 23% or higher, it’s going to take them a long time, at least another year or two, maybe more, before they can even consider ITV Digital as a potentially profitable entity.

Whilst that’s going on, both Carlton and Granada are going to be pouring money into it at a fairly substantial rate. But if they shut up shop now on ITV Digital, then they could actually escape from the situation relatively unscathed, and be more attractive to shareholders when they finally merge into the one giant ITV company as everybody expects.

But lets look outside the business perspective a moment. On a broader level, what would this mean?

Well, put simply, if ITV Digital closed, it would give Sky a near monopoly situation all over again. Cable doesn’t really have the geographical reach, let alone anything else, to compete with Sky.

Cable would have some wonderful advantages against Sky, if it was available to more people in more areas of the country, but it isn’t, and the cost of making it available to those areas would be too prohibitive.

In non-cabled areas, it would make Sky the only multichannel service provider available. They would have the same situation they had in 1991, when they merged with BSB, all over again.

But what about Digital Terrestrial? Well, its future as a subscription platform right now looks almost non-existent, in fact, worse than it did when it began back in 1998.

If ITV Digital were to close, any hope of the platform providing a viable subscription base would be lost. And perhaps that’s the way it should be. Digital Terrestrial could actually now be properly set up to provide local and regional channels for every part of the country.

BBC-1 and BBC-2 could both be fully regionalised, with the regional service being made available only on Digital Terrestrial. BBC Choice, News 24 and Knowledge would still be available, with the possibility of BBC Parliament being available in both sound and vision.

ITV could benefit out of this arrangement too, with both ITV1 and ITV2 supplemented by an extra channel, only available on Digital Terrestrial, which would provide regional programmes to the regions, no network schedules of any kind – similar to the German system.

At least 2 other regional networks could be setup on Digital Terrestrial, perhaps with one as an affiliation network rather than a franchise network. Local Television stations would get space and be able to benefit from Digital TV.

And all I’ve done there is just scratched the surface. The local/regional potential of Digital Terrestrial is huge. BBC Local Radio and ILR could suddenly find a new way of digitally transmitting their programmes, on Digital Terrestrial Television, just like some radio stations use Digital Satellite at the moment. In theory, the potential is only limited by the imagination.

But the thought of the government just handing Sky a near monopoly for the second time just jars. The whole idea is anti-competitive. But it’s difficult to imagine any other company wanting to step up and compete with an experienced multichannel provider like Sky.

Competing on Satellite seems non-viable and trying on Terrestrial seems impossible too, while cable doesn’t have the reach to compete.

Perhaps if any company were to try to compete with Sky, it would have to be a multi-platform strategy.

A potential digital service provider could make a box that could be used to receive channels from both an aerial and a minidish, and offer complementary packages on both platforms. But the cost of that is prohibitively enormous, and it’s difficult to imagine any company wanting to try.

So perhaps a state-owned company is required for this, but I can’t honestly see the British government doing that, much as I would like them to.

So, to summarise, should ITV Digital close? Probably, it does seem like the best option.

Should Sky be handed back another near monopoly? No, it would be a bad move to do it all over again. Is there any chance of another digital television provider coming on stream to compete with Sky?

Unlikely, consider the prohibitive costs. So, perhaps we are stuck with Sky and by making Digital Terrestrial a free-to-air service of local and regional networks and channels, perhaps we are making the best out of a bad situation.

[Since this article was written, ITV Digital has closed and has been replaced, after a prolonged wait, by a free service called Freeview and a small pay service called Top Up TV]

   

Ian Beaumont

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