Europe’s media groups are greedily eyeing up the digital TV market. Meg
Carter asks whether they are geared up to get it right first time and
considers how the new technology will affect advertising strategy
It would make a wonderful board game - if anyone understood the rules,
that is. For the evolution of European digital TV is anything but a
natural progression. The fledgling market is characterised by a constant
flurry of new partnerships being struck and, barely before the ink can
dry, splitting acrimoniously. Not to mention the dollars 64,000-dollar
question for advertisers: Just what will it all mean?
The world’s leading media players are championing the development of
digital TV because of the significant potential rewards: in particular
the new generation of pay-TV services that digital technology makes
possible, which promise the largest source of new revenue since the
advent of TV ads.
‘With the biggest operators, Canal Plus and BSkyB, showing healthy
profit margins of 14.8 per cent and 20 per cent respectively,
subscription-funded TV channels are widely viewed as the next big
opportunity in the media world,’ according to the CIT Publications
editor, Ross Parsons, who has just completed a report on Europe’s
digital TV market.
But digital TV promises other benefits. Like higher-quality pictures and
more channels: it allows up to ten to be broadcast in the bandwidth
currently required for just one. This, in turn, cuts transmission costs
and the potential to provide programmes - notably feature films -
virtually ‘on demand’, because the same film can be broadcast on
different channels at 15-minute intervals.
Two types of digital service are envisaged. The first, digital satellite
TV, will enable satellite channels - in particular BSkyB - to introduce
hundreds of new channels, notably video-on-demand. Sky has already
committed itself to launching around 150 in 1997. The second, digital
terrestrial TV, will allow all existing terrestrial broadcasters to
introduce new services, although capacity is more limited. Around 20 new
channels are due during, or after, 1998.
The Independent Television Commission is expected to start issuing
licences next spring. Although likely to take longer to establish,
digital terrestrial is seen by many as the key to unlocking the digital
TV revolution, as it will be truly mass market.
For the time being, the exact nature of both remains unclear. However,
one thing’s for sure: each will require TV viewers to buy a digital
decoder, or set-top ‘black box’, allowing traditional non-digital
(analogue) TV sets to receive digital transmissions. These boxes are
expected to cost the consumer between pounds 200 and pounds 500.
But agreeing the technical standards and specifications for this is a
major stumbling block - at least four different systems are currently in
development in Europe alone. That was one reason for the strategic
importance of the Murdoch/Bertelsmann/Canal Plus alliance. They had
hoped to share the costs of new technology, ensuring dominance in their
respective domestic markets.
The full-scale development and introduction of digital broadcasting is
expected to cost about pounds 500 billion. Yet it remains unclear who
will foot the bill. Leading figures from the TV industry remain divided
on whether digital technology should be delivered through terrestrial,
satellite or cable TV networks, a critical issue for manufacturers of
digital decoders and for consumers.
Murdoch is widely regarded as being in the best position to lead the
market in the UK. Last October, he set terrestrial broadcasters’ pulses
racing when News Corporation bought the Advanced Products division of
National Transcommunications, the former engineering division of the old
Independent Broadcasting Authority.
In one fell swoop, Murdoch had bought a back-door route into digital
terrestrial TV. Through News International’s 40 per cent interest in
BSkyB, he was already working on a digital satellite TV system. News
Datacom gives him control of the latest technology for delivering
digital terrestrial signals, too.
BSkyB plans to launch digital satellite TV next year, probably using
News Datacom black boxes, although it is understood to be considering an
alliance with BT to jointly develop and distribute digital TV and
In May, Sky confirmed plans to launch 200 channels, with films offered
on a pay-per-view basis, using as many as 60 channels to broadcast a
wide range of titles. Up to 500 could eventually be offered, through
joint ventures with TV companies and others, such as Virgin.
‘Without a shadow of a doubt, satellite will lead the digital TV
revolution and Murdoch will be at the forefront of that,’ Alan James,
broadcast director of the Network, says. Even so, Sky is worried about
how this will affect existing subscribers and is likely to continue
broadcasting traditionally for quite some time.
The BBC also unveiled digital TV plans last month. It’s working towards
a 1998 launch, which is why it recently re-structured, realigning
traditional departments into new divisions, such as broadcasting,
production and resources, following the Channel 4/ITV pattern.
The corporation already has a global strategic alliance with Pearson.
Now, there’s speculation it might have to work with BSkyB, for although
it plans to develop digital terrestrial TV, it also says it will ‘go
with whichever technology is available first’. However, industry sources
remain sceptical. ‘So far, all it’s said about content is re-runs and
24-hour news - hardly revolutionary,’ one Mirror Group source wryly
Meanwhile, ITV has pencilled-in plans to launch digital TV ‘some time in
1998’. Further details remain under wraps, but the timetable will be
dictated by the speed with which the ITC can implement the Government’s
timetable, described by many as ‘optimistic’.
The Government has yet to confirm a date for turning off existing
analogue transmissions - the only guarantee of kick-starting the digital
revolution. A likely scenario is that, in 1998, UK broadcasters will be
given 12 years to switch to digital-only transmission - 12 years is
regarded as the natural lifetime of a traditional analogue TV set, the
point at which consumers would be prepared to trade up to a new
generation, digital TV set.
Estimating the likely impact of digital TV is an imprecise science.
‘It’s absolutely impossible, on the basis that the market is 100 per
cent unpredictable at the moment,’ Frank Harrison, head of research at
Zenith, explains. ‘We don’t know whether the ‘boxes’ will sell at pounds
1,000 or pounds 100, who will operate the system or what the content
Yet many in the ad industry appear convinced that the advent of digital
will dramatically affect the way they do business. CIA Medianetwork’s
deputy managing director, Marco Rimini, is confident consumers will buy
it. ‘Ask the public about digital and they don’t know what it is. Ask if
they’re interested in more channels and they say ‘yes’.’
Consumers simply see digital as meaning more, he adds. ‘They don’t know
how these services will be different - and in truth, nor do we. But
digital certainly promises a major sea change, a shift away from
traditional programming and advertising patterns.’
The relationship between advertiser and media owner will fundamentally
shift, believes Mike Smallwood, media director of Lowe Howard-Spink.
‘There’s enormous potential for customisation and focus. The first step
is more thematic channels; the next, advertisers directly controlling
content. We’re already discussing the potential of this with Vauxhall.
‘People talk of 200 channels, but an awful lot won’t have original
content - it will mostly be repeats and video-on-demand channels with
timed delivery opportunities,’ James, of the Network, says. ‘Once people
start to watch TV in that way [what they want, when they want it]
they’ll be unlikely to accept interruptions for commercial messages. The
challenge is to find alternatives.’
Such as positioning brand messages at ‘gateways’, where viewers make
decisions about which service to select or programme to view. Or by
becoming more closely involved in programming - through sponsorship and
co-funding. Or by working with broadcasters’ subscription databases, he
Proof of digital’s significance can be seen in the race between major
media owners to secure film and TV libraries and sign up exclusive pay-
TV rights. Most channels are already aligned to one of the digital
consortia rolling out across Europe.
It will inevitably shake the existing balance in the media market, one
satellite channel executive says. ‘As operators, we will become less
dependent on advertisers,’ he says. ‘Future success will depend on
maximising all revenue sources to achieve the strongest business.’
Just what the balance will be between new and traditional services is
also unclear. While it’s hard to find anyone who believes new-generation
channels will kill off existing services, the growing importance of pay-
TV will have an effect, according to CIT’s Parsons. ‘Once pay-TV revenue
exceeds spot advertising revenue, it will have a knock-on effect on
commercial TV content, programme-makers and advertisers,’ he says.
The future balance of power within the industry will inevitably be
dictated by today’s strongest players. But even identifying these is
tricky. Sky’s timetable, for example, is likely to be affected by the
collapse of its pan-European digital partnership with Bertelsmann, Canal
Plus and Havas.
Bertelsmann’s partnership with Canal Plus was rocked by its deal earlier
this year with the Luxembourg-based media company, CLT, which is
launching a rival French pay-TV channel. Now, the rival German media
group, Kirch, has announced plans to launch its own digital TV system on
28 July. Whether Murdoch swaps allegiances once more remains to be seen.
Countdown to digital
The pay-TV operator, NetHold, plans to launch digital TV in Belgium and
the Netherlands this summer. NetHold already runs digital services in
southern Africa and Italy. The French pay-TV operator, Canal Plus, plans
to launch multi-channel digital TV in Belgium this autumn
Canal Plus launched 15-channel digital-TV on 27 April. It now has 45,000
digital subscribers and hopes for 150,000 by December. Its competitor,
TPS, plans its digital TV launch later this year. A third system could
also be launched by CLT, which recently merged its TV interests with
The media group, Kirch, launches its digital TV service, Digital
Fernsehen, on 28 July. It will include at least ten film channels,
children’s documentaries, classical music and sport. Its arch-rival,
Bertelsmann, is developing a system that it hopes to launch by the
autumn. It also has a digital TV partnership with CLT and Deutsche
Telekom. Kirch recently acquired a stake in the Italian pay-TV group,
Telepiu is working towards launching multi-channel digital TV in Italy
this autumn. NetHold has already launched digital TV in Italy, offering
three pay-TV channels
PerfecTV, backed by Itochu and Mitsui, Sumitomo and Nissho Iwai, launch
digital satellite broadcasting services next year. More than 40
broadcasters are expected to participate. Meanwhile, the rival service
provider, DirecTV Co, launches a second 100-channel-plus digital
satellite TV system next June. The latest entrant is Rupert Murdoch, who
recently confirmed plans to launch a Japanese satellite TV venture,
In May, BSkyB confirmed plans to launch 200 digital satellite TV
channels in autumn 1997. The BBC and ITV also plan to launch digital
terrestrial TV services in 1998
Changing attitudes to advertising
1 Which statement best describes the amount of advertising on non-
terrestrial channels compared with terrestrial?
% of UK cable/satellite subscribers
A lot more on terrestrial 5
A little more on terrestrial 10
The same 22
A little more on cable/satellite 20
A lot more on cable/satellite 43
2 How would longer/more frequent ad breaks affect your enjoyment of TV?
Wouldn’t mind/notice 10
A little annoying/some adverse effect 23
Very annoying/serious adverse effect 63
Don’t know 4
3 ‘I would rather pay a subscription fee to watch a channel without ads
than watch a free channel with ads’
All adults agree 26
AB adults agree 34
Cable/satellite subscribers agree 30
Source: CIA Sensor