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Friday, October 05, 2007

OFCOM: DTT Headache

Nearly all the UK population haven’t a clue about the UK DTT platform. They do know about the TV channels moving to digital and the choices available. In fact, there is only 15% of the population who remain with just analogue TV in the home. The UK, probably more than any other country in Europe, has a very healthy mix of consumer options for TV.

UK viewing

The problem for OFCOM is that most UK consumers associate the DTT platform with the traditional Public Sector Broadcasters (ie BBC, ITV, Channel 4 and five). This is completely borne out by the BARB statistics: 70% of viewing is for the five analogue channels (BBC1, BBC2, ITV, Channel 4 and five) and over 90% of viewing is the main PSB channels and their derivates in a “Free to Air” mode.

A detailed look at the evolution of channel line-up shows just how much PSB output dominates the DTT airwaves: in Oct 2002 when Freeview was launched there were 22 channels of which only 7 (Sky Travel, Sky Sports News, Sky News, TMF, The Hits, TV Travel Shop and QVC) were from non-PSB sources; whereas today there are 41 channels with only 12 being from non-PSB sources.

Please note, I am including the state funded Community Channel and Teachers TV in the PSB sources. I am also including the jointly owned BBC and Virgin Media channels, UKTV History and Bright Ideas in the PSB source.

Of the non-PSB channels, six fall into the t-commerce category (QVC, Thomas Cook TV, Ideal World, Smile TV, PriceDrop TV and Bid TV), two are music channels, TMF and The Hits, one is from the Virgin Media and three are from the Sky family.

Furthermore for non-PSB owners, it appears that life is really tough: The Disney owned general entertainment based abc1 channel has been withdrawn; emap has sold 50% of all its TV business to the allegedly skint and needing a further public subsidy, Channel 4, for £28m (this includes payTV channels The Box, Smash Hits, Kerrang!, Q, Kiss and Magic as well as the DTT channel the Hits) and Sky wouldn’t be considering withdrawing its channels if they were profitable.

It is appears to me that it is very difficult to make a channel pay on the basis of advertising funding alone, especially when you are competing against the PSB for advertising spend. ITV plays on this point in presentations to the City – advertisers pay a premium for mass market audiences. Of course, it helps even more when the PSBers are gifted their spectrum and non-PSBers have to pay for their capacity.

Basically, over time more and more of the DTT capacity is being used by the PSBers and diversity is shrinking rather than growing on the platform. OFCOM answer to this is to put its head in the sand and instead ask questions about whether Channel 4 needs yet more state subsidy, when it is using allegedly scarce and incredibly valuable capacity to run channels like C4+1, E4+1 and F4+1. Also, whoever regulates the BBC allow them to bleat about budget cuts (the actual licence fee increased) whilst they are busy buying travel content company, Lonely Planet, and blowing millions on an fatally flawed internet distribution platform.

The real problem is that OFCOM is absolutely terrified that 15% of digital refuseniks are going to kick-up a tremendous fuss when their analogue Tellies stop working over the next few years. Let’s be perfectly honest and state the chances are them running out before digital switch over and taking a DSat or Cable subscription are next to zero.

OFCOM and the BBC Trust are also really interested in rapidly pushing through plans for FreeSat, the DSat equivalent of Freeview on DTT. I’ve always been extremely baffled by this, especially when Sky offer an equivalent service which is fairly priced, but the recent furore in Whitby, which has piqued my interest but not hit the national press yet, provides a clue for the true motivation.

Basically refarming of any spectrum is difficult: even playing with power levels and mast position will not give the same coverage as before. This could develop into a huge PR nightmare as digital switch over occurs, especially as a lot of channels will just not be available outside of the main 80 DTT masts. DSat will basically be the only economic alternative for people suffering poor reception and the BBC just does not want BSkyB to be seen saving the DSO.

People should also not forget this use of the DTT spectrum is version 2. Version 1 was the bankrupt ondigital financed by ITV. It should also not be forgotten that BSkyB wanted to be part of ONdigital, but was barred on competition grounds. ITV has obviously admitted defeat on payTV and nowadays seems to take a 100% ad-funded model for all distribution channels including the internet.

However, Channel 4 is still confused: it sort of admitted that selling subscriptions for Film 4 was a big failure; it also seems to want to get out of the game of encrypting its other channels and therefore earning revenue from Sky; yet it is still trying to get consumers to pay for content on the internet.

It such also be remembered that for however much the PSBers whinge and whine, their past and continuing failures in PayTV are completely of their own making and the state subsidised channels have been cross-subsidising these failures for many a year.

Out of ashes of version 1 of DTT raised the fatally flawed TopUpTV service. TopUpTV require a different kind of Set Top box which is not compatible with the main Free To Air boxes. In fact, Set Top Boxes which have cracked the TopUpTV encryption are freely available on the internet and eBay if anyone does not want to pay the subscription charges. It should also be noted that the current version of TopUpTV is one that has just emerged from liquidation. Even with the addition of Setanta content, which is the best shot in the arm for TopUpTV for many a year, I suspect that TopUpTV will not around in the medium term with its current subscription/technology mix.

The lessons to OFCOM are clear: the DTT platform is currently unhealthily dominated by PSBers, there is a huge barrier to entry to new content ownerss and there is already a flawed PayTV platform using the DTT spectrum which is basically going nowhere fast.

Basically, I believe Sky is the last hope before the whole of the DTT platform becomes subsumed by the PSBers, which is the outcome that the BBC have wanted all along. This is the question that OFCOM should be considering; instead of wasting its time on preventing Sky’s entry it should be actively encouraging entry.