Network Insight Institute

Peter Webb

Peter Webb, Consultant to DBA

The title for the seminar today could be taken as providing some difficulties for digital television: either that we are only lately becoming serious about digital TV; or the transition system itself needs some sort of serious attention. I do not think that either of these implications is valid. As Mandy Rice-Davies would say, "He would say that, wouldn't he". But I think there are some obvious candidates for the difficulties that we face with digital television, and one not so obvious candidate.

The obvious candidates, of course, are things like planning the allocation of channels, developing receivers to Australian specifications, providing the money for investment to make it all happen, and worrying about the prospects of return on an investment. These are all serious matters, that require not a little work and attention. However, I do not think they are the most difficult of all to manage. I think the most serious thing for us to grapple with is the management of expectations.

It's hard not to raise expectations when you introduce a technology of this kind: it's going to affect every Australian, and it's going to affect the principal leisure activity of every Australian. So you are immediately aware, as I think the government was when the ABA report came out in 1997, that this needs to be handled very well. However, expectations get raised when you are introducing this sort of technological change, and sometimes our enthusiasm for the end game -- for what digital TV in this case is going to deliver over time - can cause us to lose sight of some of the more sobering facts, like the sheer scale of what it is that we are trying to do in changing from analogue to digital TV, and the timeline over which this will need to occur.

DBA, and the industry bodies and organisations it represents, understands the need to manage expectations, and we have been trying to do that for the past couple of years. We have resolved that it is better to under-promise and over-deliver; to try to keep our nerve but never lose sight of the fact that we need to inform, advise and explain, and keep those expectations at realistic levels. One of the things that is worth explaining again is the fact that the policy settings determined between industry and government are designed not to pressure the consumer to make the transition until the consumer is ready to do so. There are a number of features in the policy which work to that effect. The obligation to buy some hardware (a set top box or an integrated receiver) has effectively been postponed because of the simulcast period. Now, I know that we are 2.5 years into an 8 year period in the metro markets, but there is review, built in to law, to reconsider that 8 year period, and that will take place in a couple of years time. And I do not know anybody who has the realistic expectation that the 8 year period will not be extended.

In the United Kingdom, which began a couple of years or more before us, where they are working in an integrated vertical market rather than a horizontal market, very good progress has been made. They are talking about a 12 year simulcast period and perhaps even longer. So I do not think that the 8 year period before analogue starts to turn off around Australia is realistic and I think the consumer probably understands that as well, having gone through the mobile telephony transition from analogue to digital. So that's one of the matters that relieves the pressure off the consumer.

As well, we can go on using our old TV sets for as long as we like; people who own an old analogue 4 x 3 set will always obviously be able to use it, even after the analogue services are turned off. As well, policy has protected Australian consumers from the prospect of the standard definition service going blank when a high definition service was being broadcast, by making it mandatory for broadcasters to always provide the standard definition service. And that was also designed to help with receiver prices, encouraging introduction into the market of SD-only receivers.

There are a number of policy settings that really work hard to take the pressure off the consumer to buy. That means consumers are expected to elect to buy rather than be forced to buy. In this country that traditionally happens on this basis; we have a little over 7 million homes, and we sell about 1 million TV sets a year; about 70 per cent of those sales (lets say _ of a million sets) are what we call the replacement market. That is, sales to people who are replacing their old TV sets, upgrading, or buying an extra TV for their household. The other 250,000-odd are going to the 250- 300,000-odd new dwellings we create every year in this country. So it's that replacement market where Australian consumers are going to be brought face to face with the option of converting to digital when they go to a retail store and elect to buy a TV set. That's the point at which they are going to be interested by the option of taking a digital receiver of some kind. They can consider the consumer proposition, in other words, free of pressure to buy.

What is the consumer proposition now? Well, currently it is not the interactive TV or the email on TV. What can we do at the moment? We can provide wide screen pictures, sharper pictures, better sound, extra channels. As for extra channels, that option is not as healthy as it once was given the difficulties between the ABC and the government, but for the rest of the options, the proposition is in reasonably good shape and advancing on most fronts. Let's look at those elements of the proposition one by one.

Firstly, wide screen and wide screen programs. They owe their popularity I think to DVDs which came into this country in mid-1997. The aspect ratio of choice for DVDs is wide screen 16 x 9. They are proving very popular as I will show you in a moment. They provide superior pictures and sound, and by the end of this year a DVD player will probably be in 40 per cent or more of Australian homes. Digital television is playing its part as well for the wide screen camp. Seventy-five per cent or more of Sydney and Melbourne prime time programs are in wide screen. Broadcasters have been commissioning all local product in wide screen for a couple of years now, and sourcing as much material from overseas in wide screen as is possible. It is only the relics of the 4 x 3 age (that is, older series and programs that were originally shot in 4 x 3 , news clips and that sort of thing) which these days you will find in prime time on digital services.

Let's have a look at DVD home penetration. For starters, let's compare what is happening here in Australian with what happened and is happening in the US. Australia is lagging the US in terms of implementation by not much more than about 12 months. In the US, after 2_ years DVD players were only in one per cent of homes; but after 6 years, the penetration of DVD players into homes had reached 40 per cent.

Let's have a look at the year-on-year sales comparison between 2002 and 2003 to give some idea of the pace at which DVD player sales are growing. There was a 57 per cent increase in sales year to year, and I project that sales for the forward year of 2003 will probably be something like 1.4 million DVD players in Australia this year. So you can see that DVD is very popular and it is very popular because of wide screen pictures, good quality pictures, and quality sound.

By looking at the wide screen receiver sale story, it is possible to see that they began in Australia probably in about the year 2000, and cathode ray tubes (CRTs) have achieved steady growth over the past two or three years. They are selling now at such a rate that by the end of this year they should constitute about 20 per cent of all TV sales in Australia, and much more than that by value. The graph also shows the advent of plasma screens. You can see how they have grown. Although CRTs took a bit of a downward turn in the December/March quarters for 2002 and this year, that was more because of supply problems - they simply couldn't be shifted fast enough - but plasma screens and LCDs are also showing very, very strong growth.

The popularity of these products has been assisted by price reductions. CRTs, which still give probably one of the best pictures, averaged $3,700 in January 2001. They are now down to an average (across all the models and the brands) of $1,900. That is nearly half the price they were only 2_ years ago. Plasma displays were selling a year ago at $9,000, and these days it is $7,000. Clearly, they are reducing in price at a considerable click. LCD has only been in the market since October, and they holding their average price of a year ago at around the $2,000 level. Now to the cumulative sales to retailers of digital TV receivers. DBA has not received from the usual industry research organisations reliable figures about this until very recently, (in the last two or three months) because there weren't enough players in the game to enable those statistics to be released. However, you can see now that there is a healthy growth curve. It took about 18 months to sell the first 20,000 units in Australia. It took another 6 months to sell the next 20,000. In the past 6 months just under 50,000 have been moved, so the curve is steepening and one could realistically expect that it will continue to do so in a similar fashion.

And where are they selling? New South Wales has the lion's share of these sales, and that's probably understandable because apart from Sydney being a very large metropolis, digital TV started early in the Newcastle and Wollongong areas. In addition, Sydney turned on its translators at the end of 2002, whereas the translators for the other metro markets are not expected to be turned on until about October this year. So that gives an indication of where we are at the present time.

Just a couple of words about DBA and its role. Imitation is the most sincere form of flattery, and it is heartening to see that the Japanese industry has just approached the Japanese ministry with a proposal to establish a DBA-like organisation in that country for implementation of digital terrestrial television. DBA has chosen retail front-line and installers as the place where it could best intervene and provide information to the Australian consumer. Most Australian consumers are going to get their information from a retail sales person or an antenna installer. That's the area we concentrate on. We provide those people with information through a wide range of avenues:

• information and product evenings;
• point of sale materials;
• DVDs;
• consumer brochures;
• on-line newsletters;
• a website which last week recorded over 800,000 hits, 18,000 visitor sessions and did 4,000 downloads of over 150 different documents;

We are working now on a retailer guide which is designed to equip retailers with further and better information that will help them handle the trickier, more complex questions they are receiving from consumers.

Finally, we must continue to bear in mind that we are dealing here with a horizontal market implementation. It is not a vertical market with all of its concomitant efficiencies; so free-to-air must bring consumers on gradually and seamlessly, and I am confident that provided we manage the expectations of those consumers the digital transition will be a positive and rewarding experience for them.

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