Any day now, the Department of Trade & Industry will publish the regulations designed to ensure fair play in the digital age. These are the rules intended to stop Rupert Murdoch becoming “the digital dictator”, “the keeper of the global gate” or simply “the conqueror” – depending on which scary headline from The Independent or The Guardian you prefer.
The fear is that the current Murdoch/BSkyB dominance of the UK pay-TV market will be extended into the digital age – and since pay-TV revenues have already overtaken the BBC’s licence-fee income, and Sky has already bought the live rights to many of the nation’s top sports events, there is good reason for its rivals to be nervous.
Yet that fear may prove to be overstated. The new DTI controls are unlikely to satisfy those who believe Murdoch is the devil incarnate. But it seems they may now meet the objections of BSkyB’s main competitors, ITV, the BBC and the cable companies. It all depends which of Sky’s several potential digital strangleholds they regard as the most important.
When people talk of Murdoch and Sky (in which he holds a 40 per cent stake) as the digital gatekeeper, they tend to lump a number of separate functions together.
(a) The digital satellite set-top box, which BSkyB is shortly expected to order from manufacturers, and which may, or may not, also be able to receive digital terrestrial (DTT) signals.
(b) The conditional access software inside the box (sometimes known as smartcard technology, encryption system or scrambling device) and the subscriber management service that operates it, ensuring that pay-TV viewers only get the channels they are entitled to.
(c) The customer management service which Sky runs in Livingston in Scotland, handling its relationship with its 4 million direct-to-home households, including payments and direct marketing.
(d) Sky’s dominance in multichannel marketing and programming – particularly in the two most important areas of sport and films.
Barry Cox, director of the ITV Association, now believes the regulations may give Sky’s competitors most of the assurances they need, particularly since they will be administered by a tough regulator in the person of Don Cruickshank of Oftel. But with the final details still to be ironed out, much still depends on the small print.
Sky has made most of the running in the race to bring digital TV to the UK – reserving half the capacity of the Astra digital satellite that is due to launch next autumn; putting out a specification for digital set-top boxes; and opening discussions with all broadcasters and production outlets which might want to fill some of those 200 channels.
The assumption seems to be that Sky will leave digital cable services and DTT trailing in its wake. Indeed, many doubt whether DTT – with only around 20 channels to satellite-and-cable’s 200-plus – has a future at all. But it now seems Sky may not have things all its own way.
With 4 million existing (and presumably satisfied) direct-to-home customers, Sky must try to persuade a proportion of them to buy a new set-top box (at between 200 or 300, if it can find someone like BT to subsidise it; more if it can’t).
Even if – as suggested last week – it lets them pay it off in instalments, that will be a difficult sell. But what is often overlooked is that those customers must also have their dishes adjusted or replaced.
The digital satellite is in a different orbit from the existing Astra satellites and requires a device to be attached to the dish to receive digital signals. As a retuning task, this is more complex than Channel 5’s (though affecting far fewer homes) – and several experts believe it is unlikely to be achieved before next Christmas. Compare this with the digital cable proposition. The cable companies, who admit their marketing has been lamentable, are waking up to the fact that they must get into the digital market at the same time as Sky or be left behind. Some believe this is their chance to catch up.
Stephen Davidson, chief executive of TeleWest (which will remain the largest operator till the Mercury-Videotron-Nynex-Bell merger takes place), says it will launch its digital service next autumn when Sky does. And whereas Sky will expect its customers to buy their boxes and adjust their dishes, TeleWest will replace its customers’ analogue boxes with digital ones at no extra charge. Davidson says it will also let them go back to their analogue service if they decide they don’t want to remain digital.
And what about DTT? Is it doomed because Sky will launch its satellite boxes first and won’t let them receive DTT? Probably not. Though the Sky boxes are unlikely to be truly compatible with DTT – one manufacturer, Pace, says that won’t be possible for a couple of years – they are now expected to have a fitting that will allow DTT to be added at little extra cost.
The real potential for DTT, however, lies not in the sale of set-top boxes, but in digital TV sets, offering the wide screen (for films and sport) and high quality sound that are part of digital broadcasting’s attraction. Cox points out that 4 million TV sets are sold each year, compared with well under 1 million set-top boxes. Once digital TVs are on sale they will be able to pick up – free of charge – widescreen BBC, ITV, Channel 4 and Channel 5 and the dozen or so new DTT channels, with no need for a dish or a box or an engineer. Expensive at first, their price will come down, like that of all consumer durables.
For the four-fifths of homes that have so far shown no inclination to enter the age of multi-channel television, this may be all the digital TV they want.