BT Vision, the telecoms giant’s TV service delivered via broadband, is claiming a significant boost to its offer through a new TV-on-demand deal with ITV.
The arrangement allows BT Vision customers to watch their favourite ITV programmes at a time of their choosing through the Replay Service, where they can already catch up on shows from the BBC, Channel 4 and Five. It is quite a coup, claims BT. “This makes our catch-up service the best of any platform in the UK,” says BT consumer content director Marc Watson.
One source sees it as an opportunity for ITV to test out whether on-demand services cannibalise viewing of its main channels. Would Coronation Street fans prefer to see their favourite show via a catch-up service or when it is first broadcast? In addition, BT Vision will be able to deliver advertising in the on-demand format after mid-2009, enabling ITV to convert BT Vision into a healthy revenue stream in the future.
“The saving grace for ITV is that not many people have got BT Vision at the moment, so it can use it as a testing ground,” says the source.
Launched two years ago next month, BT Vision so far claims some 340,000 users, leaving it some way off its goal of 2 to 3 million customers by 2010. The slow take-up, partly a result of a lack of alluring content, has led some to question the parent company’s commitment to the service.
Here is a technology and infrastructure giant which makes over 85% of its revenue from servicing businesses and corporations. It needs to build credentials in the entertainment industry if BT Vision is to be successful, and the ITV deal is a step in the right direction. But BT Vision needs to further increase the content it offers to be a player in a TV world where content is king.
BT Vision chief executive Dan Marks says the aim is to get 2 to 3 million customers in the “medium term, rather than by any set date”. “We started marketing the service 18 months ago and we are doing very well. Remember, the growth of any new platform is slow at first,” he says.
With 4.8 million BT broadband subscribers waiting to be persuaded to take up BT Vision, he is confident the service will build up a following, but accepts that getting credentials as an entertainment and media brand is a “key challenge”.
Marks says BT Vision has the largest on-demand programme library in the country, with offerings such as a children’s TV package without advertising. He says advertising in on-demand programmes will be introduced in 2009 with the opportunity to closely target ads at households, as revealed by Marketing Week (July 24). He believes BT Vision gives a low cost and flexible offer to consumers, compared to rivals.
Some think BT would do better to spin off its consumer services into a separate company, maybe combining them with an entertainment provider such as ITV. This would allow BT to concentrate on its main business of providing telecoms infrastructure for SMEs and the likes of Procter & Gamble, Fiat and Reuters.
On BT’s commitment to BT Consumer, Marks says: “We’re confident BT Vision is important to the group, which is backed up by the significant investment made in content and the network.”
Dan Bobby, chief executive of brand consultancy Dave, part of The Engine Group, which works on the Sky account, says: “The challenge for BT Vision is getting people over the mindset that BT is just a telecoms company… It has fantastic broadband infrastructure and technical services… but it doesn’t have the credibility in content creation and distribution.” He suggests that BT should buy or merge with an entertainment brand, using the example of Sky, which overcame its “cold” image by providing popular content such as Sky One and Sky Sports.
BT Vision was launched in December 2006 as a defensive move to protect the telecoms giant’s broadband customers from the triple-play packages of BSkyB and Virgin Media. These offer telephone, broadband and TV deals all rolled into one.
BT Broadband customers can take up the BT Vision set-top box which combines a personal video recorder and a Freeview box. This is free to those who pay for additional packages – such as the kids pack (for £7 a month) or Setanta Sports coverage of Premiership football. But the PVR/Freeview box is just £60 for those who don’t want to pay extra. With such competitive pricing, many expected people to buy the box without adding the paid services.
So far, BT claims that 80% of customers with BT Vision pay for additional services. Yet that figure is likely to include many who have paid a few pounds to watch one or two on-demand programmes. One observer says only about 200,000 viewers have significant paying packages.
Martin Olausson, digital media strategist at Strategy Analytics, says: “BT Vision’s success is all going to come down to content.” He says that average revenue per user is £30 for Sky and £40 for Virgin, but for BT it is between £20 to £25.
BT is lobbying regulator Ofcom to force Sky to give it access to premium football and film content, though Sky claims there is no mechanism to offer this. Sky chief operating officer Mike Darcey told a recent media conference: “BT likes to blame Sky, but the reality is that as long as we are not allowed to use our own digital terrestrial TV (DTT) capacity for premium channels, we have no way of making those channels available to BT or any other distributor on the DTT platform.” He suggests BT should buy a Freeview channel – at a cost of £10m – or bid for TV football rights.
But according to Marks, “There will be a regulatory ruling [by Ofcom]. The technical issues can be overcome.”
TV on demand is a potentially powerful offer for BT, though there are questions over how far the UK public will warm to this way of accessing their favourite programmes. Rather than just being a “pipe” down which services flow, BT Vision needs to offer some alluring content if it is to hit its target of over 2 million users.
The consumer launch of BT Vision two years ago heralded the mainstream advent of TV delivered to sets over a broadband connection (IPTV) in the UK. Lining up behind were France Telecom’s Orange and Virgin Media, which planned an IPTV roll-out to areas not covered by its cable footprint. Both have been put on hold.
BT’s was not the first service – Video Network’s Homechoice in 2000 claimed that – but even with the (limited) might Tiscali provided when it bought the service in 2006, numbers have remained low.
Yet, in western Europe, and France in particular, IPTV continues to grow strongly. By the end of 2007, France Telecom alone achieved 1.2 million subscribers for Orange TV, of which 90% of subscribers were in France. It had hoped to replicate that success in the UK.
The UK roll-out was announced in June 2006, with a later promise it would launch in 2007. But earlier this month, UK chief executive Tom Alexander admitted Orange was “not happy with the service” and “had decided it was too similar to BT Vision”. No roll-out is imminent, he said.
Perhaps naively, the big players in the telecoms sector imagined a TV cash cow in the UK, despite a number of hurdles and a vastly different digital landscape to France.
Digital penetration in the UK is high, at 87.9%, according to the latest Ofcom figures. Pay TV is dominated by satellite, namely BSkyB, with cable operator Virgin Media bringing up the rear. In France, penetration of cable and satellite is about half that of the UK, while competition among IPTV providers is strong. In the UK both Freeview and Freesat offer choice without subscription.
For operators such as BT facing increased competition for broadband services, not least from the likes of Sky, this seems a defensive action. Telecoms companies are losing their share in the broadband market, and TV is seen as a way of reducing the loss of subscribers, as churn of TV services is about half that of broadband.
However, analyst Screen Digest suggests that for most operators IPTV has not covered its costs in reduced churn rates, and resulted in little or no growth. With a number of services pulling in low TV revenues, it poses the question of whether they can ever repay their investment.
Gartner says content providers have spent too long developing “me too” alternatives. As BT is finding, any company considering launching an IPTV service in the UK would be wise to find a new niche.