Often a baffling area in terms of international sales, digital television is nonetheless slowly creeping up on traditional delivery systems. In time for MIP-TV, RealScreen lays out the digital domain in two weighty territories. ED KIRCHDOERFFER spells out digital in the U.S., and ANDY FRY decodes the U.K.
In the fall of 1998, the U.K. was finally introduced to the wonders of digital television.
First out of the traps, on October 1, was Rupert Murdoch’s British Sky Broadcasting which spent around £60 million promoting its 200 channel platform, Sky Digital.
Six weeks later came ONdigital, a digital terrestrial television (DTT) service jointly-owned by Granada Media Group and Carlton Communications – offering simple-to-use technology and a more modest package of around 18 basic and premium channels.
So far, these two platforms have been battling it out for subscribers between themselves. Before long, however, they will be joined by the U.K.’s big three cable operators: Cable & Wireless Communications (CWC), Telewest and ntl. Each of these is expected to launch a digital set-top box by spring 2000.
SkyDigital’s typically aggressive launch was designed to achieve two things. The first was to encourage Sky’s existing 3.5 million analog satellite subscribers to upgrade to digital. For £199, subs were offered a new digital decoder box, installation of a dish and a range of subscription packages starting at £6.99 and peaking at £29.99.
While this pricing package is attractive by U.K. standards, the Brits have proven notoriously difficult to convert to multi-channel television. Despite hammering away for ten years, pay-tv has still only achieved a 29% penetration in the U.K. More significantly, only 15% of Brits have been persuaded to buy a dish; the rest signed up to cable tv on the back of cut-price telephone deals. In fact, since 1997, satellite dish sales have been virtually stagnant.
With these troubling stats in mind, the second, crucial part of Sky’s strategy has involved making itself more acceptable to the vast majority who have not bought into the pay proposition.
This goal is being tackled by distancing SkyDigital from the analog platform’s historically downmarket image. According to head of Sky Entertainment, Ian West, who oversees the company’s marketing, the goal is to ‘head upmarket while still aiming for big numbers.’
News and documentary channels have played a prominent role in this part of the game plan. Alongside Sky News, BBC News 24 and the Dow Jones/NBC business channel CNBC, Sky offers seven channels from Discovery on an exclusive basis, the National Geographic Channel (in which it holds a 50% stake), The History Channel UK, [.tv] (which covers computer and music themes, among others), UK Horizons and UK Arena – which is also a Sky exclusive.
It is too soon to tell if the U.K. audience has reacted favorably to Sky’s new image. By early signs, subscriber take-up has been encouraging. At the unveiling of its year-end results in February, the company reported 350,000 sign-ups – described as ‘pretty damn good,’ by Henderson Crosthwaite Institutional Brokers media analyst Mathew Horsman.
Of these hook-ups, about a third were homes new to the pay-tv market – another better-than-expected performance, says Horsman (see Sidebar for more of Horsman’s views on the market).
Another good omen for Sky has been the almost universal decision by subscribers to opt for the most expensive program packages rather than the low-entry points. More than anything, this indicates just how much of a pull the premium sport and movies channels have obtained.
With launch phase complete, SkyDigital looks on course to reach a million subscribers by the fall – a target first promulgated by West during 1998.
That BSkyB is serious about digital is underlined by the scale of its investment. In 1998, the company’s annual profits fell for the first time since 1994 as it geared up for the switch. In 1999, analysts believe profits may drop as low as £150 million – less than half the 1997 total of £341 million.
Unlike the analog multichannels market, where Sky emerged as the dominant platform operator and program supplier, it faces a stiff challenge to its digital ambition in the shape of ONdigital.
ONdigital’s marketing director Marc Sands claims that ‘Sky’s dish distribution guys are terrified of us because we can offer consumers a friendly and accessible system that does not depend on complex technology.’
According to Sands, cable and satellite ‘have not been very efficient at growing pay-tv in the last ten years. The British have found the technology at best complicated and at worst a major irritation.’
ONdigital, by contrast, sends its digital signals via a conventional aerial. This approach, coupled with simple channel packages, is what will drive the platform, says Sands. ‘The focus groups we have done show that people are completely fazed by the thought of 200 channels.’
If the simplicity of ONdigital’s ‘plug and play’ offer does woo subscribers at SkyDigital’s expense, it isn’t all bad news for Sky, as it provides the dtt platform with its premium movies and sports channels.
Sands acknowledges that, ‘by supplying premium channels, Sky stands to make more money than we do out of ONdigital for the next few years.’
Although ONdigital does not have Discovery onboard, and is still waiting to tie up the major Viacom brands, Sands claims it has a good enough package of channels to win subscribers. ‘We have all the most popular thematic channels such as Sky One, UK Gold, Eurosport and Cartoon.’Other basic channels which he believes contribute strongly are uktv’s factual channels UK Horizons and UK Style, and the Carlton Cinema channel.
If there is an ace up ONdigital’s sleeve it is that ITV (which is dominated by Granada and Carlton) has chosen not to air either the main commercial channel or its recent start-up ITV2 on SkyDigital. ‘Having ITV and ITV2 exclusively will be a strong pull,’ says Sands. ‘BBC Choice and Channel 4′s film channel FilmFour are also proving to be an important part of the proposition.’
ONdigital’s performance has been subjected to frenzied media speculation because of its refusal to give out any figures on how many set-top boxes it has shifted. It is unlikely to publish figures before April – when most observers expect it to announce between 60,000-100,000 set-top box sales. This is widely regarded as a modest but satisfactory start.
Sands is confident that ONdigital is here to stay. ‘Most of the long-term predictions about the market are complete nonsense because no one knows. But I am convinced there is room for Sky, ONdigital and cable to co-exist.’
The digital cable position is unclear at present. Although it is widely touted as having the best technology, thanks to a fibre-optic telecommunications network, the industry’s marketing has left much to be desired in the analog environment.
Looking ahead, the prospects for growth are mixed. On the downside, there are continued question-marks over the leading players’ commitment to the sector. CWC recently lost its director of programming and head of business strategy, while Telewest is subject to persistent takeover rumors.
On the plus side, NTL has recently received a £300 million cash boost from Microsoft and has out-performed the usual lack-lustre levels of cable penetration by clever marketing of program packages. While cable pay-tv typically achieves 22% penetration of homes in its franchise areas, NTL has got the figure as high as 45% in some cases.
Horsman’s view is that cable has missed an opportunity by taking so long to get to market with a digital box. He estimates that the delay could cost the industry as many as 225,000 potential subscribers in the first year of digital.
That said, Horsman still expects digital cable to emerge as the largest pay platform. By 2008, he is predicting that six million will have signed up to cable, 4.7 million to SkyDigital and 3.3 million to ONdigital. A further seven million will have a dtt receiver but elect to view non-pay services only. The key point here is that Horsman views all the platforms as viable.
Cable’s long-term prospects have often been linked strongly to the advent of interactive entertainment, communications, banking and retail services. Although it has the best technology for such services, interactivity is another area where it has been beaten to the punch by Sky, which is poised to launch an interactive television platform called OpenŠ in partnership with Panasonic, Midland Bank and BT.
OpenŠ lacks cable’s fast two-way path into the home, but Horsman is again confident that it will emerge as a market leader by offering what he calls ‘Internet lite’ – a selective, accessible, secure version of the on-line experience via the tv set. Henderson Crosthwaite is predicting that OpenŠ will quickly grow to become a £1.7 billion e-commerce business.
ONdigital’s race to the market was achieved at the expense of interactive functionality. Although it can – and will – offer email, it cannot provide the complex range of services touted by its cable and satellite rivals. Still, this is unlikely to affect the DTT platform’s chances since its core proposition relies on providing increased viewing choice.
Views on the relative merits of tv versus the PC as an interactive medium are split. However, advocates of the tv model, such as BSkyB chief executive Mark Booth, point to the fact that Brits watch tv for four hours a day, whereas pc usage is down around the 10-15 minute mark.
If there has been a question-mark hanging over the pace of digital’s growth, it has concerned efforts to define the ‘killer application’ that will make consumers trade up. Horsman doesn’t believe there is ‘one killer application. Instead I see a number of mini-drivers like movies, sport, interactivity and a strong price proposition combining to win subscribers.’
One of the last minor mysteries in the digital market was resolved in March when dtt consortium sdn (United News & Media, NTL and S4C) finally announced its programming plans.
Like ONdigital, SDN has been granted a license to operate programs and services by the ITC. However, it’s been a long time in letting the market know its intentions. Now, sdn has revealed plans to team up with ONdigital to launch a five channel dtt pay-per-view service.
In itself, this announcement is not likely to revolutionize the digital market. However, Horsman makes one significant observation. ‘For the first time, the major players in ITV (United, Carlton and Granada) are all working together. That should create robust competition for Sky. There have been times in the last ten years when a similar alliance between ITV’s main players could have helped limit Sky’s growth.’
In hindsight, ITV’s most notable failure was allowing Sky to win the rights to top class soccer in the U.K. in 1992. This effectively allowed Murdoch to launch his business in the U.K. The new alliance, coupled with a multi-tiered pay-tv broadcast platform, could – for the first time – provide a serious alternative to Sky’s dominance of major sports rights.
THE CHANNELS: PRODUCTION AND DISTRIBUTION
Much of the hype surrounding U.K. digital television has focused on the launch of the SkyDigital and ONdigital platforms last fall. But there has also been a flurry of activity among broadcasters and producers seeking to position themselves advantageously in the new environment.
Having been guaranteed digital terrestrial (DTT) capacity by tv regulator the ITC, each of the U.K.’s three main terrestrials were encouraged to launch new channels. Thus, in fall 1998, Brits witnessed the arrival of BBC Choice, ITV2 and FilmFour, the Channel 4 movie channel.
Despite the impetus provided by DTT, none of these channels is limited to carriage on DTT exclusively. Conscious of the need to secure the widest practicable distribution, Choice and FilmFour are both platform neutral – and already available on SkyDigital.
For the strategic reasons outlined in the introduction, ITV (ONdigital’s kissing cousin) has chosen to withhold its new service from SkyDigital. But it has secured a deal with analog cable in order to boost its subscriber base.
Essentially, ITV2 is positioned as a younger version of its sister channel. It will offer extended sports coverage, a second opportunity to see popular peaktime programs and a raft of new shows. Keen not to be viewed as an archive channel, ITV2 has commissioned a total of 1,100 hours of new programs for the first year.
Among key commissions are a nightly teen lifestyle show called Bedrock, a docusoap called The University from United Productions and three commissions from ITN: Trevor McDonald Meets, Wide Angle and Who? What? Why? – which will sit at the heart of ITV2′s themed factual evening on Thursdays.
BBC Choice, a free-to-air public service and the first new general interest channel from the U.K. pubcaster since the launch of BBC2 in the 1960s, is a more ambitious concept than ITV2. Designed as a complementary channel to BBC1 and BBC2, it has sought to exploit the BBC’s production base and archive resource in a unique way – all on a modest £20 million-a-year budget.
Head of programming Katharine Everett professes to be pleased with the channel’s performance in the first six months. She is also delighted with the levels of awareness it has achieved. Despite digital’s tiny subscriber base, ’70% of people in the U.K. have heard of Choice – a fact that is largely down to us having a promotional presence on the main terrestrial channels BBC1 and BBC2.’
Typical of the Choice approach is Sunday evening theme night The Take which uses a high-profile show on BBC1 or BBC2 as its starting point and schedules complementary programming in parallel with it.
For example, when writer Jimmy McGovern’s hard-hitting drama series The Lakes returned to BBC1, ‘we made a half-hour documentary with him and broadcast some of his best-known dramas like Priest,’ says BBC Choice’s channel development executive Sally Angel. An actor who has worked closely with McGovern fronted the evening.
Similarly, in the stripped 8 p.m. factual slot, Explorer, a week’s worth of original and archive programs is scheduled around a theme such as Fame or Home, Sweet, Home – an evening which Angel calls ‘a look at our current obsession in the U.K.. with interiors.’ Included in that package was a commissioned documentary called Interior Hysteria, produced in-house at the BBC.
The archive material has proven more problematic than originations, says Everett. In particular, showing archive-based theme nights only once on Sunday nights is labor-intensive and viewers don’t get enough opportunities to watch them. So Everett is looking at repeating them.
Since the theme nights are complementary to programming on BBC1 and BBC2, this means the choice of links will need to be less specific than at present, she says.
Just as difficult for Choice has been been access to archive programming. Requesting single episodes from a long running program is not easy, admits Angel. Nor is asking for archived shows at very short notice.
‘The commercial rights team at the bbc has worked hard to help us. But the systems are not really in place to deal with our high volume of requests,’ she says.
With tight budgets, opportunities for original production are limited. The biggest independent commission has gone to Lion Television, which makes the nightly behind-the scenes show Back Stage for the 6 p.m. slot (see Sidebar).
This, however, is a rarity. More often than not, shows are made in-house by departments such as BBC Arts, BBC Drama or The Production Village – a unit set up with the express intention of producing low cost shows for BBC Choice.
Angel says: ‘We do commission indies – for example, Illuminations Productions produced programming which looked at how technology had affected television in our [thematic evening entitled] `Set-Top Boxing Day.’ But when budgets are tight, you have to ensure that you keep a close eye on communication and quality control. There is no margin for error.’
Everett also insists there are still opportunities for indies to win commissions, though she admits ‘this is a complex channel for them to get their heads around. It isn’t about producing 150 episodes of a cheap studio format at $5,000 an hour. So far, we haven’t had enough of the right ideas coming from the indie sector.’
Among the new shows, Everett is particularly pleased with Back Stage, sports show 110% and the fanzine Eastenders Revealed: ‘Despite our low budgets, all of the new shows have exceeded my expectations,’ she says. ‘Some of them look like they could have been made for BBC1 and BBC2.’
Angel claims to be well satisfied with the performance of Choice since its launch in the fall, though there have been some changes to the original concept. ‘We’ve moved younger,’ she says, ‘and we probably made it overly difficult for ourselves by linking Choice to BBC1 and BBC2. We soon learned that their schedules are so competitive that programs we had planned to develop themes around might suddenly be shelved for six months.’
With digital penetration so low, there has been little feedback so far on how the channel is being received by the audience. However, the upside of this is that Choice is ‘a great environment for new talent to thrive,’ says Angel. ‘The terrestrial channels are too exposed.’
From those who have seen it, Everett says there has been ‘positive feedback. Choice is viewed as being more friendly and informal than a typical BBC channel,’ she says.
If there is a problem, it is how to acquaint viewers with the diverse nature of the schedule. Unlike most non-terrestrial channels, Choice is a mix of original and archive shows across a range of genres.
‘Viewers are finding it difficult to navigate around what is a complex channel in a tv environment where most channels are thematic,’ says Everett. ‘The channel won’t change dramatically, but we need to think about how we use our magazine listings space to present program information more clearly.’
Internally, says Everett, BBC production units are responding well to Choice now that they have seen the channel in operation. ‘At first, I think some of them felt that their department budgets were being eroded by the BBC’s commitment to digital. But now many of them want to work with us.’
THE REST OF THE PACK
ITV and BBC are not alone in their digital developments. However, for most other players, activities in the new environment need to be seen in the context of their existing analog multichannels offerings – which often act as the spine for new services.
For example, Discovery’s digital strategy builds on its existing analog satellite portfolio of Discovery Channel Europe, Discovery Home & Leisure and Animal Planet. These three services are now available on SkyDigital alongside Civilisations, Travel and Adventure, Sci-Trek and Discovery plus One Hour, a time-shifted showing of the main channel.
Discovery Networks Europe managing director Joyce Taylor says the launch of the new channels was ‘a way of meeting our needs and those of the Sky platform. They wanted an offering that had greater choice and flexibility – and asked what we could come up with.’
From dne’s point of view, digital was seen as a way to ‘consolidate our strong position in the U.K.’ says Taylor. ‘For ten years, we were the only factual channel. In the past 18 months, UK Horizons, The History Channel and National Geographic have arrived. So this was a natural development for us. It is better to fill the shelf-space yourself than let your competitors do it.’
Filling seven channels is achieved by exploiting the Discovery archive and boosting original production. ‘More channels means an increased commitment to programming,’ says Taylor. ‘We have our blue-chip series, which receive major investment from the u.s. But we are also commissioning specifically for Europe through our new senior vp of programming Peter Weil.’
Typical examples include Pilots, a new series which has invited ten different indie companies to produce innovative new one-off shows with the possibility of winning a series commission off the back of it.
There is, of course, no point in launching new channels if no one wants them. But Taylor insists there is a demand for the Discovery bouquet. ‘We are offering customer value, flexibility, choice and convenience. If Discovery is your first choice but it is not showing a genre you want you can look across schedules for an alternative. Our aim is to meet people’s moods.’
Not only does this mean viewers default within the dne family, ‘but the satisfaction with Discovery is going up and we are able to cross-promote between services,’ claims Taylor.
Digital is also a major part of the expansion plan at National Geographic Channel Europe, according to head of programming Gisele Burnett. To date, it has involved extending from six hours on analog to 18 on SkyDigital.
According to Burnett, digital is a way of ‘building the brand’s presence in the marketplace. Further down the line it is an opportunity for us to widen our programming remit.’ Currently she says, NGC Europe is looking at whether ‘we can extend into new areas like history and science which we haven’t done on analog.’
More hours also means NGC Europe can be more flexible in scheduling: ‘We look at the audience available in daytime and try to find suitable programming,’ says Burnett. ‘For example, we have a natural history slot called Ocean Worlds which is not really primetime but works well in daytime. We tend to put more wildlife in daytime.’
Although the increase in hours on digital has meant some repeating of content, Burnett stresses that ‘we need to be originating more quality programming to maintain the strength of the brand.’
This, in part, explains the rationale for the three-year coproduction relationship formed with Carlton Television last year. ‘There isn’t really enough good programming on the market right now,’ says Burnett. ‘That’s why it makes sense for us to have relationships with companies like Carlton where we can get involved early and monitor quality.’
Getting quality programming at the right price is the critical issue for the new digital channels. This is a tough call. With digital expected to be in just 1.5 million homes by the end of 1999, it is hard to justify substantial program budgets.
Some companies, however, have been gearing up for just such a scenario over the last two years by making low-cost shows for analog satellite channels. Granada Sky Broadcasting, for example, has a 240-strong production unit making 28 hours of lifestyle programming a week at under £4,000 an hour for Breeze and Men & Motors – two channels which are now available on both analog and digital. (See Sidebar.)
Granada’s approach has been to keep production in-house in order to amortize the costs of production. But there are channel providers which have proved that digital can be of interest to the indie sector. Carlton Digital Networks, for example, has four channels – two of which, Carlton Food Network and Carlton World, have been regular providers of work to indies. CFN has already been running for three years on analog cable and is now available between 9 a.m. and 5 p.m. on digital terrestrial. As its name implies, it deals with all aspects of cooking. Perhaps surprisingly for a U.K. thematic channel, 70% of CFN’s schedule is commissioned and only 30% is acquired.
Carlton Digital Channels’ director of programming Anne Gray explains that ‘we have acquired North American shows but often found they have ingredients, cooking styles and weights & measures which the U.K. market isn’t used to. It made more sense for us to tailor CFN to the British market.’
Gray uses Carlton’s in-house production team to make a number of shows including a daily studio-based half hour called Carlton Food Daily, which is shown three times.
But she has also worked with indies like Transmedia, Blackbird Productions and Pineapple Productions. ‘We’ve given a lot of work to Transmedia,’ says Gray. That way they can amortize costs over a number of series.’ Likewise with Blackbird, which is just starting a 26-parter for CFN.
According to Gray, the cfn brand is well-established and lends itself well to digital’s promise of interactivity. Already cfn programming is supported by supplementary services on the web and text and a 30,000-strong club.
Gray also oversees Carlton World, a factual channel which airs for five hours a day between 7 p.m. and midnight on the ONdigital platform. Carlton World is dedicated to all types of factual programming and splits output into theme nights such as Law and Order on Saturdays, Being at Home on Friday and Wildlife on Wednesday.
Of its 35 hours a week, much is acquired from sister company Carlton International and overseas distributors like Beyond and Southern Star. However, around seven hours a week are original commissions.
For example, Carlton has made a series called Flying Cops while Carlton-owned indie Action Time has made a style-based chat show. In addition, Transmedia has been commissioned to make a fly-on-the-wall series about local newspapers called The Paper. Gray cites that as an example of how ‘digital is a way for indie production companies to experiment with new types of programming.’
AND THE PRODUCERS SAY
The arrival of the new digital outlets provokes mixed reactions from indie producers. With budgets so low, it seems clear that large commissions are the only way for producers to make the business profitable. Prospect Television, for example, has been able to structure a business around digital by working on numerous strands for the [.tv] channel at the same time.
rdf is another which has made a successful go of production for digital outlets. However, director of sales Matthew Frank believes that volume is not the only necessary condition for making digital work. ‘Low cost production is a good business for us because we have a distribution arm. We can make programs at a price which suits the digital channels by retaining the rights to our series.’
One example is Wine World, a 13-part lifestyle series for UK Style, the BBC/Flextech joint-venture lifestyle channel. So far, Wine World has sold in three other territories and is being lined up for a second batch of 13 episodes.
RDF is also in the process of developing a follow up series called Style World for the same broadcaster. ‘By going to markets like mip we get a clear indication of what the international market might want.’
Knowledge of distribution is not RDF’s only asset, says Frank. ‘We also have edit suites and cameras in-house. Digital is a chance for us to utilize our resources effectively and give young program-makers and editors a break. We couldn’t do what we do if we had to edit these shows outside.’
David Pounds, managing director of factual programming distributor Electric Sky, shares Frank’s opinion that digital is an opportunity for producers and distributors.
One of his clients, OR Media, has recently sold the fashion series ˆ la mode to UK Style, having also secured international program sales for the series.
‘There is no question that there is a viable business in U.K. digital – as long as producers don’t fall into the trap of making shows which are too British in their appeal.’
Pounds is currently working on behalf of NGC Europe and The History Channel, ‘earmarking producers who are making shows which could be relevant to their schedules.’
He believes thematic channels and distributors ‘are very complementary. The market is so competitive that the channels have to start working with quality producers as early as possible in the production cycle. They have got to be pre-buying or coproducing if they are to get the best material available. Distributors with good contacts can act as facilitators between channels and producers.’
However, not everyone is convinced that digital in its current form is a worthwhile business. itn factual boss Julian Ware has made numerous shows for the analog channel Discovery Europe but believes ‘the budgets in digital are so low that, for us, it isn’t worth doing them until the market has expanded further.’ According to Ware, when the budgets are very small, ‘it is not a good use of management time to concentrate too much effort on them.’
Even the prospect of high-volume series does not impress him. ‘Nothing times nothing is still nothing,’ he laments. ‘I’m proud of the programs we do here and don’t want to see my staff run ragged trying to keep up the quality. We don’t want to risk turning out programs we are not happy with.’
That said, ITN Factual has also been involved in one show, Trevor McDonald Meets, a studio-based chat show involving the U.K.’s best-known newscaster.
‘That is the sort of program you can produce effectively on the budget available by utilizing your in-house resources,’ says Ware
Carlton International managing director Rupert Dilnott-Cooper is also quite cool regarding digital’s value at present – particularly when it comes to the prospect of funding low-cost producers. ‘I think there is an opportunity to make branded shows in volume. But the immediate beneficiaries of that will be the indies. For us, it is quite a labor-intensive business and not a priority.’
That said, Carlton does distribute archive shows to the digital market and expects prices to rise as the sector increases penetration. ‘Digital is another window for us and has its benefits,’ says Dilnott-Cooper. ‘Often, we can secure shorter license periods for shows than with the main channels, and sometimes deal with them on a non-exclusive basis.’
He has no doubts that eventually digital will grow significantly in value: ‘In a few years, it will expand to become a key market for us.’ His evidence for that claim is the analog cable and satellite market ‘which grew from being 2% of our business to 25% in just three years.’
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