The Long Road to Revolution

Britain stands on the edge of the digital revolution, yet applicants for digital terrestrial licences seem less than enthusiastic about its prospects. There are still several problems which need to be ironed out before the multichannel system

Digital TV has the capacity to make your head hurt like nothing else since the first chapter of Stephen Hawking’s A Brief History of Time. It is complex technology delivering unknown prog- ramming in an uncertain future.

But this Friday several major media groups, and other more surprising entrants, are expected to throw their hats into the ring to become players in digital TV’s future. Because Friday is the deadline for applications for the remaining three and a half multiplex lic ences that offer entry to the world of commercial digital terrestrial television (DTT).

But the deadline is not exciting the same sort of interest as other recent broadcast licence applications. The reason is simple – the applicants are applying for licences that could be redundant within 12 months because of the 200 digital satellite channels to be launched by BSkyB later this year. So why are they bothering?

Each multiplex is a bundle of three to six channels, giving a maximum 21 channels in all. Applicants can apply to run one or more multiplexes, or apply as a part of a consortium that will divide up the multiplex. They can even apply as a kind of publisher-broadcaster, commissioning others to supply programming for the channels.

There are no sealed envelope bids. The applicants have to establish their financial viability, meet a quality programming threshold and outline the technology they will employ, but they do not have to pay for the licence.

Two and a half multiplexes were guaranteed last year for existing terrestrial broadcasters – the BBC, ITV, Channel 4, S4C, Channel 5 and Teletext to simulcast their existing analogue output and some extra services.

The BBC plans to use the extra space on its multiplex for a free-to-air 24-hour news service. It will also use a spare channel – it calls it a side channel – for related programming. The example most often quoted is an Omnibus documentary about Jane Austen on a side channel following Pride and Prejudice on BBC1.

ITV’s digital dreams are being co-ordinated by ITV Association director Barry Cox. So far, an advertising-funded ITV2 is all that has emerged of its plans for additional channels.

The three and a half licences on offer will be awarded this spring for a 12-year period although the Independent Television Commission (ITC) has already said the licences will be extended for a further 12 years if a licence holder meets its obligations. The DTT channels are to start broadcasting by July 1 1998, or a year after the licence is awarded if that is later.

It says much that few of the usual suspects have yet emerged as applicants. Granada and United News & Media, two thirds of ITV’s big three, seem likely to settle for the channel they have already been guaranteed. Yorkshire Tyne Tees’ Bruce Gyngell has famously branded DTT a “turkey”.

Nevertheless, the ITC received over 300 requests for the application documents – many from overseas organisations keen to see what the UK is planning.

Those tipped to apply are a mixed bag. Carlton Communications is definitely interested, perhaps in collaboration with Mirror Group as a programme provider. Others rumoured to be involved include cable company International CableTel, Mohammed Al Fayed’s Liberty Broadcasting, French broadcaster Canal+, Chrysalis and the ubiquitous Virgin, which is believed to be interested in a music channel. Carlton has bought up movie rights in Hollywood.

Those applying are doing so because the only definite thing about the future of British TV is that it will be digital in some form. There is also a defensive motive: if you have one of the digital channels then your rival doesn’t. The Government will consider turning off the analogue frequencies currently being used by terrestrial broadcasters in six years or when digital penetration hits 50 per cent of homes, whichever comes first.

But the rate of consumer take up will determine everything. The BBC’s most optimistic figures are for about 25-30 per cent penetration in eight years – ahead of what satellite and cable have achieved.

These figures are based on the fact that more new TVs are bought in the UK every year than satellite dishes – over 3 million. So if retailers start selling them soon, in eight to ten years every home could have a TV equipped for the DTT signal. DTT’s defenders argue that these will be portable, an advantage over digital satellite, and will have the capacity to receive regional programming.

“There will still be a mass of viewers who do not wish to sign up for BSkyB’s satellite dishes and pay services,” says one likely applicant who wishes to remain anonymous until after the applications are complete. “Even if BSkyB offers 200 channels, research in the US’s 60-channel homes shows people only watch eight channels anyway.”

This argument maintains that by having a smaller number of channels, viewers can be charged smaller subscriptions for any pay channels. And there will be enough free-to-air channels, such as the BBC’s 24-hour news channel and ITV2, to act as an inducement.

What is not clear is where the money is going to come from to fund DTT. ITV will struggle to make an ITV2 pay: competition for advertising is already exploding around it and few of the broadcasting groups have the margins to invest much in a new programming stream.

It is thought that subscription rather than advertising will fund most of the channels, but either way, programming investment will depend on the length of time DTT will take to reach a critical mass of subscribers. “DTT will suffer from no income (at launch),” says one BSkyB source. “That will mean no investment in programming and no uptake.” Using the model of cable and satellite, BSkyB believes that only sport and movies can drive uptake of pay TV services.

BSkyB’s confidence for its digital satellite service comes down to its sheer number of channels. It believes 200 channels will allow it to create truly different television.

The main application so far touted is near video-on-demand (VOD). Near VOD is the use of a large number of channels to provide a large number of movies with different start times that can be unscrambled when ordered by phone. BSkyB could dedicate 100 channels to ten movies with ten different start times, giving the convenience of the video store without a trip to the high street.

The extra channels are also likely to feature the creation of the electronic season ticket holder: using pay-per-view, football fans will be able to see live Premier League matches.

The satellite broadcaster also believes its extra capacity, used with the telephone, means it can create a form of interactive, text-based TV. No deals have yet been struck, but it is already “talking” to BT about opportunities. Home shopping, personal finance and travel information services are all possibilities.

“There is not nearly enough capacity on DTT,” says the BSkyB source. “Only with lots of channels can you provide niche programming to pockets of subscribers, as well as the sports and film rights BSkyB already has.”

Whatever the arguments about programming, the focus of the debate on digital has so far been dominated by talk of encryption technology and the role of the so-called “gatekeeper”.

Digital television is broadcast in a series of binary codes that need to be unscrambled by a set-top box. This is what TVs will eventually have built into them, but at present they are likely to cost – if subsidised by broadcasters – about 200. The concern is that consumer confusion about decoding boxes – one system for satellite digital and one for DTT – will retard uptake of digital TV.

There is also a more fundamental fear that by getting into the market with subsidised boxes early, BSkyB, and its major shareholder Rupert Murdoch, will come to dominate digital encryption technology. With the Midland Bank and the Matsushita Corporation, BT and Murdoch are already developing 500m plans to supply digital decoders.

After pressure from the BBC and ITV last year the Government charged telecoms watchdog Oftel with ensuring free and fair access to set-top box technology. BSkyB, secure in the knowledge that the Government has rarely interfered with its monopolistic tendencies, has promised to market boxes that can be easily upgraded to receive DTT.

Oftel has yet to rule on whether there should be one type of decoding technology or whether some guarantees from BSkyB and the operation of the free market will be enough. This, combined with doubts about how long it will take to pay, and the competition from BSkyB, underline why the queue for licences has yet to form.

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