MEDIA: FORUM - Will BSkyB’s free digital offering cripple ONdigital?/Sky Digital was already the world’s fastest-growing digital television system. But now that you can get the decoder box for free - along with cheap phone calls thrown in

The City had no hesitation in welcoming Sky Digital’s new marketing initiative, announced last week. Nor was there much doubt about its implications - on the day after the announcement, BSkyB’s share price rose by about 10 per cent while Carlton’s and Granada’s fell by about the same amount.

The City had no hesitation in welcoming Sky Digital’s new marketing

initiative, announced last week. Nor was there much doubt about its

implications - on the day after the announcement, BSkyB’s share price

rose by about 10 per cent while Carlton’s and Granada’s fell by about

the same amount.

Carlton and Granada are, of course, the lead shareholders in ONdigital,

currently Sky’s only rival in the digital marketplace.

Interestingly, though, shares in the UK’s largest cable company, Cable &

Wireless Communications, also fell by more than 11 per cent following

the news. Digital cable launches later this year and Sky’s move was seen

as an effective pre-emptive strike against this sector too. And, yes,

the same-old metaphors were being trotted out in the national newspapers

- this was war, there was only going to be one winner and that winner

would inevitably turn out to be Sky.

But let’s face it - the Sky offer was pretty spectacular. And it did

take everyone by surprise. From 1 June, Sky will be giving away its

digital set-top decoders to new subscribers - the only cost will be a

one-off pounds 40 installation fee. On top of that, subscribers will be

given free internet service provision and 40 per cent off all standard

BT phone calls. Sky also announced that it will switch off its analogue

service on the last day of 2002 and that it will be giving decoder boxes

to its current analogue subscribers.

It made ONdigital’s marketing initiative (announced just prior to Sky’s)

seem rather puny. It too said that it would give away free decoders -

but only for people buying a television set worth pounds 200 and only

for a limited period. So perhaps there is something in the military


This is a price war. (And by the time you read this, ONdigital will

probably have been stung into improving its own offer.) But is there

really only one winner? Is it as simple as that? Is it really Sky’s plan

to force ONdigital out of business?

After all, BSkyB’s chief executive, Mark Booth, is reported to have said

that he intends to take Sky into every home in the country. But he’s

probably forgetting studies which show that large numbers of consumers

won’t have an ugly satellite dish on the side of their home at any

price. Lorna Tilbian, a media analyst at Panmure Gordon, believes that

this is still an important factor. She comments: ’ONdigital will still

have a role to play over the long term because of that widespread

aversion to satellite dishes but ONdigital’s ’a bit more TV, cheaply’

unique selling proposition has gone. This initiative potentially hits

cable operators too because their big selling point was cheaper

telephone calls. Sky Digital now does that too.’

But this clearly shifts the balance in Sky’s favour. Tilbian adds: ’This

will drive audience, no doubt about it. This will be of interest to many

within the 75 per cent of the population that ONdigital was targeting.

Those who were desperate for more movies and sport already have it but

it might be attractive for people like me who are probably more

interested in, say, news channels. Now they can get multichannel TV and

telephony for less than they are currently paying for their phone


Many observers believe the ball is now in cable’s court - after all, it

already offers telephony and TV. Will ONdigital be squeezed? Russell

Boyman, the broadcast director of Mediapolis, says that would be putting

it too strongly. He states: ’Of course the big challenge for Sky is the

huge percentage of homes that won’t take dishes. What does it take to

change their minds? But I think it’s clear that ONdigital will fall

behind - its own marketing initiative is pitiful in comparison and

everyone knows its pockets aren’t as deep as Sky’s. I’d agree there will

be room for three different transmission platforms for the foreseeable

future but this relegates ONdigital way down on the pecking order.’

Boyman argues that the real long-term argument is about


’I don’t think ONdigital will be in that market at all,’ he


’But the good news from our point of view is that Sky’s interactive

service, Open, should meet its target of launching with one million

homes connected to digital satellite. I think that within three years,

the number of digital homes will outstrip the number of homes with

personal computers in the UK. That is great news. We’ve been talking to

clients about interactive and telling them that it will be coming - now

the timescale has been reduced.’

Dave King, the broadcast director of Carat, thinks that the Sky

initiative is a watershed in the development of digital services in this


He states: ’There will always be a sizeable customer base for satellite,

cable and terrestrial. So it’s not an issue of who will win - but cable

does need to get its act together. Sky is driving digital forward, the

other two players are reactive and less organised.

’It’s a good move for advertisers in that it brings forward all the

perceived benefits of the digital future. It’s great news for viewers -

apart from the half million or so who have already paid for their boxes.

And it’s great for agencies that will be able to stop speculating and

start delivering the benefits of interactive television to their


So how worried should ONdigital be? Paul Longhurst, the managing

director of Quantum New Media, points out that, while Sky’s long-term

strategic battle will be with cable, ONdigital will be hurt most by this

latest tactic. He says: ’In the short term, there is no doubt ONdigital

will lose many potential customers to Sky. But this time, the ultimate

goal - Rupert Murdoch taking ONdigital out of the game - isn’t an

option. I can’t see the Government allowing it.

’But in any case, the long-term strategic issue is interactivity - and

cable companies are best placed to compete on that front. But I’ll bet

that cable companies are scratching their heads now, trying to refocus

on what their proposition really is and how they can communicate that to

the consumer. Broadly, all of this activity is probably good for the

consumer and that is good news for the advertising industry. Whether

there are many people in the advertising business in a position to take

advantage is another matter.’