Digital the future of TV

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

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

interactive services.

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

will be.’

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?

                                              % adults

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’

                                              % adults

All adults agree                                 26

AB adults agree                                  34

Cable/satellite subscribers agree                30

Source: CIA Sensor