Digital contenders go head-on in all-out war for market share

At last the digital picture is getting clearer. We have a launch date – October 1 for Sky, the first in the field. The battle lines have been drawn – Sky and ONdigital head-on – both offering 200 decoder boxes, integrated TV sets with the digital receivers built in and a starting price of under 10 a month. And we have an advertising budget – no less than 100m for the two main players combined.

I’ll repeat that slowly. One hundred million pounds just for the advertising campaigns. Add in the investment for technology, programming, customer management centres, the subsidising of the set-top boxes and – in the case of Sky – free installation for all and the sums become truly mind-boggling.

This is not a soft launch as we were led to believe it might be. This is all-out war.

“Any opposition will be obliterated by the strength of our offerings,” said Mark Booth, BSkyB’s chief executive, as he unveiled its launch strategy last week. Even though analysts had marked down Sky’s shares by 40p on news of the free installation offer, which will dent profits in the first two years, he was unabashed. At 80 a household, the cost would be amortised in less than a year, he said. “I hope it costs us a ton of money because if it does it will net us a ton of subscribers.”

Mind you, ONdigital’s chief executive Stephen Grabiner had been equally bullish two days earlier when he faced the cameras after unveiling his company’s new brand name. His spirits could not have been higher if he himself had made the bungee jump that launched ONdigital on an unsuspecting world.

Wasn’t he worried that Sky was offering 140 channels against his company’s 30? Not a bit. “Undoubtedly there are people who will spend all day fiddling with an electronic programme guide. These are sad unhappy people who live in lofts. Our research shows most people don’t want hundreds of channels,” he said. “They associate it with poor quality. They want a few more channels of high quality and that’s what we’re offering.”

Sky concedes that consumers perceive quality as a problem, for which it blames itself. “We’ve only been spending 10m a year on advertising,” says Booth, “and we’ve been promoting sport and movies, not all our other channels. People also think multi-channel television is more expensive than it is, so we are going to put that right too.”

Sky maintains it is offering quality in quantity. “Whatever genre of TV you like, you’ve got more choice,” says Booth. “If you like movies, we’ve got 11 movie channels, if you like sport we’ve got five sport channels, if you like documentaries we’ve got ten documentary channels. “We will set the digital benchmark by which others will be judged.”

There were several surprises in Sky’s launch presentation. As well as the expensive decision to nullify satellite’s obvious disadvantage – the cost and complexity of its installation when compared with cable and terrestrial – it has gone all out to sign up as many subscribers as possible from the start, rather than hoping people will trade up from the rival service. Having put in so much investment, Booth is determined to get it back fast.

One surprise was the low entry price – matching ONdigital at under 10 a month. That has been made possible by the Independent Television Commission’s “unbundling” decision. Another was the news that, like ONdigital, Sky will have its own integrated digital TV sets with the receiving equipment built in.

Sky also announced it had reached agreement in principle to carry Channels 4 and 5. Booth did not mention – until questioned – that its extensive channel line-up does not include ITV, whose two biggest companies own ONdigital. He insisted that was not an issue and that when you pushed button three you would get ITV, which means, presumably, that its integrated TVs must be analogue-compatible too.

What about consumer organisations’ fears that the early generation of set-top boxes would quickly be superseded as the interactive services of British Interactive Broadcasting come on stream? Sky has an answer to that too – it can upgrade its boxes with new software transmitted direct from its satellite, as it becomes available and people want it.

All of which poses problems for ONdigital. But the terrestrial operator’s biggest problem remains its programmes. Yes, it will have all the existing terrestrial channels and their new offerings – BBC Choice and News 24, ITV2 and the C4 films-and-racing pay-service. It will have some of the most popular satellite and cable channels – Sky One, UK Gold and some of the Sky sport and movies output, including some Premier League matches.

But, can Carlton and Granada’s own channels – such as Carlton Select and Granada Breeze – really compare with some of the niche channels which Sky Digital has signed up exclusively? MTV and its off-shoots, Discovery and its off-shoots, Nickelodeon, UK Gold 2, Animal Planet, National Geographic and Paramount Comedy may have small audiences, but they are strong brands which are developing loyal followings.

Granada, too, is a strong brand, but it has yet to translate that strength into the multi-channel market. It may be that its secure place in ONdigital will enable it to do that – though on the experience of my own household, where MTV, Nickelodeon and the full range of Sky Sport channels are hugely popular, it will not be easy.

But of course my experience is irrelevant. The digital battle is not about existing multi-channel homes. The crucial market is the three-quarters of UK households that have so far resisted extra TV choice.

Has Sky Digital done enough to win them over? Has ONdigital? We can only hope so, for the sake of all their shareholders.