Skip to content

Bob Peters

Bob Peters, Director, Global Media Analysis

As the final speaker, I would like to do three things:

  • First, reinforce and elaborate on a few of the more pertinent points raised today;
  • Second, fill in a few blanks; and
  • Finally, sum up today’s discussions.

As we have been told in a variety of sessions today in a number of different ways, digital technology is a very powerful enabling technology. One point that perhaps wasn't stressed so much today, perhaps because it is obvious, is that digital technology allows for a much more efficient use of radio spectrum. Flowing from that, digital technology allows for a variety of uses, many of which are only currently being tested in the most preliminary ways in various markets throughout the world, not just Australia. The most obvious uses that we have talked about today are: more channel choice through multi-casting or multi-channelling; improved reception and transmission quality both in standard and high definition mode; and additional enhanced services, many of which are still being developed. These include interactivity, EPGs, PVRs, T-commerce, T-mail, and a variety of uses.

Here in Australia, as we were told in the initial session this morning, we are easing our way into the new technology. We have wide screen usage through digital, we have sharper pictures, we have better sound and we have a few limited new channel offerings through SBS, and up until recently through the ABC. I think a point that is very useful to make is that, as Kim Williams has said in this last session, it has actually been subscription TV who have been the pioneers and the drivers of digital technology to date here in Australia via the AUSSAT satellite. That digital technology soon will also be used throughout the Foxtel cable network as well.

In my view, there has been a lot of talk about what's right or what's not right for Australia in terms of digital. I think it is useful to make the point that market circumstances will largely determine what digital offerings are used at least in the early stages of the technology rollout. It is interesting to compare for example the US and the UK.

In the US there is already 90 per cent multi-channel penetration. A lot of people very early took cable for better reception. That was not digital cable, it was just analogue cable which allows for a multi-channelling. Consequently the average American has 82 channels to choose from. In that sort of environment I do not think the multicasting, multi-channelling capacity that digital offers is going to be a key driver in that market. Consequently it is in HDTV and enhanced services, such as interactivity and PVRs, where most of the emphasis to date has been in terms of digital terrestrial television. In contrast, in a market like the UK where multichannel penetration is still less than 50 per cent, multicasting has been seen as a possible use for digital technology. Ergo the rise over the last twelve months of the Freeview service. Also, digital technology has been embraced extensively by the three major cable and satellite operators in the UK, Sky, NTL and Telewest. Consequently, at the moment about 45 per cent of all UK households subscribe to some form of subscription television and have digital capability. Just posing a hypothetical, given that multi-channel penetration in Australia is less than, or slightly less than, 25 per cent, does Australia therefore more closely resemble the UK in terms of not having widespread multi-channel penetration? Therefore, is there some scope for an Australian version of Freeview, the digital terrestrial offering in the UK.. Just a few quick facts about Freeview which commenced in November 2002. It offers approximately 30 video and 20 video digital channels including the digitised channels of the BBC and ITV companies plus some of their digital channels offerings. It is delivered by terrestrial transmitters and you receive it from a roof top by aerial. A consumer has to pay a once-off cost, currently about 99 pounds (A$250) for a set top box. That price is forecast to soon drop to about 50 pounds for a very basic box, which would be equivalent to A$125. There is perhaps also a not insignificant additional hidden cost for viewers who reside on the outskirts of a coverage area in that some of those viewers may need to upgrade their antenna. This was the experience of a friend of mine who lives in Cheshire outside of Manchester and who discovered that after having purchased their £99 set-top box they then realised that they also needed a new, taller antenna, which cost them an additional £225. . However once those initial hardware costs are made, the terrestrial digital viewer has no other on-going outlays.

As at March 2003 1.6 million households (about 6.5 per cent of the UK household population of 24 million) were taking up the Freeview offering. Set-top boxes are being sold at the rate of about 100,000 a month. It is proving to be a very popular consumer product and projections are that by the end of calendar 2003 there will be two million households who have Freeview, giving it a penetration similar to that of the two major cable operators, NTL and Telewest, combined. Freeview has some very substantial shareholders: those being the BBC, BSkyB and Crown Castle International. If you want any more information the web address is: http://www.freeview.co.uk.

One reason why I think a multi-channel, multi-casting model might have some traction in the Australian market is that there are a sizeable number of viewers who for whatever reason either do not want or can't afford to pay substantial monthly fees for the key drivers of subscription television. The key drivers are generally regarded as sport, movies and, in households with kids, children's programs. There are a lot of people out there, single family households, older couples who do not have children, who do not wish to pay substantial sums for those types of programming. Linked to this is some very interesting research, which shows that in households which have up to 30 channels, the average viewer chooses to watch only 7 favourite channels. Even as you increase the number of channels on offer and move into the 120 channel plus environment, the average viewer peaks at watching about 18 favourite channels. So there is a question as to how many channels do people really want.

So, for example, how many of the 384-odd channels that Sky is currently offering in the UK are used by the typical subscriber? Part of the answer is of course that different members in a household watch different channels. UK research shows that males typically like sporting and news, women typically watch light entertainment and drama, children watch children's programs, and adolescents watch a combination of sport and are very heavy users of music videos. So if you have an average household of four and everyone's watching 8 to 10 different channels, you are up to 40 different channels being watched, not just 8 or 10.

Sport and movies in particular are extremely expensive forms of programming. At Sky in the UK for example, sport and movie programming costs account for 71 per cent of total programming costs, even though they represent probably only 20 per cent of the number of channels being offered. Such costs also represent 40 per cent of all total operating costs. So subscription TV, is very much driven by sport and movie programming. If there is a substantial or sizeable part of the population who is not particularly interested in that sort of programming, there might be a market which is ripe for exploitation by a free-to-air multi-channel offering.

There are, however, also a number of arguments against the likely success of a Freeview-type service here in Australia and John Porter from Austar eluded to them in part. Most importantly, both now and in the foreseeable future, Freeview in the UK is not by any means commercially viable. Freeview was the successor of something which was known initially as ‘On Digital’ and later ‘ITV Digital’. It was sponsored by the two major ITV or commercial broadcasting companies in the UK, Carlton and Granada. Each of them is much larger than any of our free-to-air broadcasters. Over a period of slightly more than four years, they lost 1.2 billion pounds (or A$3 billion) and they retired from the digital terrestrial playing field in early 2002 very wounded and very bruised. They simply could not continue to fund such a substantial loss-making operation. Their activities were taken over by Freeview which has as its principal shareholders, the BBC and BSkyB. It is fair to say that those two shareholders substantially subsidise the platform, both now and probably well into the future on an ongoing basis. They are doing that because they want to secure a digital platform and they have the resources to sustain very substantial operating losses. The difference between the UK and Australia is that I can't see anyone here , whether it be our commercial or non-commercial broadcasters, who has either the resources or the willingness to fund such substantial operating losses.

In terms of what we have at the moment here in Australia, there is not enough currently on offer to say that there is a viable business model for digital terrestrial television at present. In saying this , I'm not criticising local broadcasters for taking a very gradual evolutionary approach. As Julie Flynn said this morning, we are still very much in the developing stages of the business. The broadcasters were first developing coverage. Then they were then making sure that the reception equipment was out there available for the consumers. More recently, the- broadcasters have begun to develop content and are also starting to promote the distribution of the service. But its very much a gradual approach. Consequently what we have had to date is widescreen television, clearer reception and better sound. We also have had a few digital offerings but two of those have been withdrawn from the market because the ABC couldn't secure ongoing funding for them. Therefore all that we are only left with at present, in terms of multi-channelling, is the SBS news channel.

Anne Parsons from Zenith made the point and David Aspinall from the Seven Network reinforced the view that the problem with digital for free-to-air broadcasters is that it will fragment the market. It will fragment their audiences, it will increase their costs; but it will not necessarily generate any additional revenue streams. This being the case, it is understandable from a commercial point of view why the free-to-air commercial broadcasters are not rushing rapidly into that space. For reasons of funding constraint we can also understand why the ABC and SBS are not taking advantage of their current position where they can provide multi-channelling. They simply do not have the funds to program such channels on an ongoing basis.

Another issue which was raised in questions from a number of commentators including Stuart Washington of BRW, Peter Cropps and I think also Stuart Simpson, was the complaint that the current regulatory regime prohibits new entrants. It is said that the technology allows multi-channelling for new players but it is not being allowed to be used for those purposes. I must say as a commercial analyst who works for a number of the commercial players I can well understand the position that the existing broadcasters have taken. As John Porter has said, Australia is a very small market. Our commercial broadcasters are public companies and are driven by market expectation, as were the ITV companies in the UK. Those expectations are not just for profits but for growing profits into the future . It is very hard to be in a business where you see new technology fragmenting your audiences, threatening your revenue base and getting too excited about rushing forward into that space without seeing where the extra revenues and profits are going to come from. So its understandable why the incumbents are resisting using the new technology to promote new competition.

Before summing up , I would like to mention that there is a very interesting report that was done or commissioned by the ITC in the UK last year, called Television and Beyond the Next 10 Years. The first three chapters of that report are particularly interesting. The entire report is a very interesting bit of future gazing about what television in its various forms, but principally digital, is likely to deliver in the future.

Finally to conclude and to try and pull together a number of comments that were made throughout the day, digital television is here. Peter Webb this morning talked about the industry managing expectations, and not falling into the trap of over promising and under delivering. It is important for us to remember that it is still very early days here. As Ian McGarrity mentioned, if you put the US and the UK aside and perhaps a couple of Scandinavian countries where there is very heavy government subsidisation of the digital roll-out, Australia is reasonably well advanced in terms of digital terrestrial television. We are at the beginning of the process, not at the end. I think Julie Flynn used the expression this is not the sexy part of the growth cycle. We are only moving into the delivery phase. Robert Scott from the Australian Captioning Organisation again talked about the digital TV roll-out to date not being sexy but his words were "Its very real and its very important in terms of the benefits that it is currently delivering".

Finally, Nigel Milan and a number of other speakers talked about there being no consensus as to what will drive digital TV. Certainly it won’t be the technology and certainly it won’t be the broadcasters who will determine the shape of digital terrestrial television going forward. Clearly the future development of digital television will be the consumers, once they become familiar with the technology and its capabilities. Already they are extensively using DVDs, they will continue to subscribe to pay TV in increasing numbers, and they are beginning to learn how to use EPGs and PVRs. It will the consumers who will decide what they want and once that becomes clear then it will up to the service providers, be they free-to-air or subscription service providers, to use the technology to deliver to the consumers what they are seeking.

For Bob Peters' powerpoint presentation click here.

«  Back

^  Top of page

Network Insight sponsors include:

Helix Digital

Click here for full sponsors list.