Digital Days

October 2008

Digital terrestrial television (DTT), the next big thing in Europe as a means of delivering television, is already shaking up markets big and not so big. Its impact was highlighted in Spain at the start of August when a new fiction series produced for Antena.Neox, a DTT channel owned by the Antena 3 Televison Group, started running on the main A3 network. Not only is it on the air—the half-hour show, Impares, about the singles dating scene, is being stripped in prime time. Normally, one would expect a series to move from a large established network to a small new one, but it has worked the other way around in this case, mainly because the niche channel Neox, with a 13-to-35 target audience, was able to take creative risks, working with a young production company. The result was a show that appeals strongly to the younger demographic that the "grown-up" network wants to attract, too.

The growth of European DTT presents a very different scenario from the advent of satellite or cable competition. In the case of the latter two platforms, commercial players had to do a lot to break the inertia themselves with investment in infrastructure and massive marketing efforts. In comparison, DTT is a foregone conclusion, happening because governments have ordained the switch to all-digital transmission. Although consumers still need decoders to get DTT, and the DTT proposition in some markets is still confounding, the cost is relatively small. The arrival of high-definition TV sets with built-in decoders is likely to help smooth the transition, tying together DTT with the novelty of HDTV in one simple purchase to plug households into the future.

According to the Association of Commercial Television (ACT), the penetration of DTT in Western Europe will grow to 34 percent of households by 2012, up from 16 percent in 2006.

MARKET LEADERS

By 2012, DTT penetration is expected to top 40 percent in France, Italy, Spain and the U.K., with only Germany lagging among the five biggest markets. The Southern markets will show the most impressive growth, with Italy jumping from 16 percent penetration in 2006 to 51 percent in 2012 and Spain registering an even more spectacular surge from 12 percent to 66 percent. In France, DTT is expected to jump to 42 percent of homes (from 24 percent in 2006) and the U.K. is on track to show similar growth to 45 percent (up from 30 percent), while Germany is expected to rise from 15 percent to 23 percent.

In all of the five markets, fast-growing DTT penetration will top DTH penetration by 2012, and DTT penetration will far outstrip DTH and digital cable combined in Italy and Spain, pull almost even with combined DTH and digital cable in France and trail not far behind in the U.K. Again, Germany will be the exception, with the big growth coming in digital cable penetration (from 4 percent in 2006 to 28 percent in 2012).

Among the other markets, Finland is leading the way, with 29 percent DTT penetration in 2006 predicted to climb to 36 percent in 2012, with Sweden next at 18 percent. Two years ago, DTT was nonexistent in Belgium, Ireland, Norway and Portugal, and it was barely present (4 percent or under) in Austria, Denmark, the Netherlands and Switzerland. Growth is expected in all those countries except the Netherlands, where digital cable penetration is the highest of any market (73 percent by 2012) and DTT penetration is expected to remain at only 1 percent of homes.

In fact, it is in smaller markets where DTT might have some of the most exciting opportunities, spawning multicountry groups like Sweden’s Boxer TV-Access. In March 2008, a Danish subsidiary of Boxer won the franchise to build and operate the terrestrial pay-television platform in Denmark. In late July, Boxer was awarded the license to provide DTT services in Ireland.

Boxer TV-Access is 70-percent owned by Swedish state-owned broadcast infrastructure group Teracom, with British venture capital firm 3i holding the other 30 percent. In Sweden, where Boxer until recently had a monopoly of encrypted DTT signals, it offers more than 40 channels, most of them scrambled. Boxer now has 701,000 subscribers in a market where the switch off of analogue has already been completed.

Boxer came into a competitive market with satellite and cable pay-TV offers from Viasat, Canal Digital and UPC already present, but DTT offered a new and different type of platform.

"Our approach is particularly suited to smaller countries, where the choice on free-TV has been relatively limited," says Per Wiklund, the COO of Boxer Europe. "Our target market is analogue households, people who have had the opportunity to subscribe to pay-TV for years but have not done so. These are people who don’t want a dish. They’ve always had just a few channels. What we offer them is simplicity. They don’t need a dish. They can have a free box, so it’s plug-and-play. They get more channels but they don’t need loads of channels to make it worthwhile."

The free box is given with the midlevel package. Boxer is also slightly cheaper than the competition in Sweden, priced at about ?16 per month.

In Ireland, the Boxer DTT consortium, including Irish radio group Communicorp with BT Ireland as a business partner, staved off competition from two other consortiums to win the 12-year license to operate three multiplexes providing about 30 channels. Boxer DTT will launch its offering in January 2009, with a goal of providing an alternative to nearly every Irish household. The service will debut in major cities, and coverage will be extended to the whole country by 2012, when analogue TV signals are likely to be phased out. Irish public broadcaster RTE is also launching in the DTT market next year.

MAJOR PLAYERS

In two of the biggest European markets—the U.K. and Spain—early incarnations of DTT failed in direct competition with satellite. But now, with the switch-off of analogue set in stone, the DTT offer is making headway.

The position on pay TV is a key aspect that differentiates the largest markets. In Spain, pay is not part of the DTT picture, while in Italy it very much is. In France, Canal Plus is available via DTT, but BSkyB is not on Freeview in the U.K. Germany, meanwhile, trails the other markets in developing a DTT-specific proposition.

In Spain, the unsuccessful first shot at DTT, Quiero Television, collapsed in 2002, unable to compete with satellite. With digital switchover in Spain to be completed by 2010, DTT penetration has nearly doubled, from 2.9 million homes in May 2007 to 5.2 million in May 2008. TV consumption in DTT homes is about 3-percent higher than in analogue homes.

Antena 3’s new DTT channels, Antena.Neox and Antena.Nova, positioned themselves as leaders in 2007. Antena 3 has said its goal is to provide a complementary digital offer without cannibalizing its main channel. Its Neox channel is aimed at males and Nova at female viewers. Neox is the number one DTT-only channel, and it ranks eighth overall in DTT homes, with a 4-percent share from January to August 2008. That share is just behind TVE’s Clan at 3.5 percent and comparable with La Sexta’s 7.6 percent and Cuatro’s 6.9 percent. Nova ranks 11th with a 2.5-percent share.

"Being the number one channel in the DTT market means being number [eight] overall, and that is a privileged place to be in the advertising market," said Bernd Reichart, the head of digital channels for the Antena 3 group.

The DTT advertising market is expected to reach ?26 million in revenues in 2008, with A3 taking ?9 million. Next year, the market is expected to soar to ?92 million with A3 at ?41 million. In 2012, A3 sees the DTT ad market reaching ?388 million with its revenue at ?191 million.

Telecinco leads in the terrestrial market with a 16.7-percent share but its DTT channels are weaker, with FDF Telecinco ranking 15th in the DTT market with a 1.1-percent share, while Telecinco 2 ranks 19th with 0.7 percent. "Since cable and satellite penetration is so low in Spain, the DTT market is the exciting place to be," Reichart continues. "The way that competitors approach it is determined mainly by how well their main channels are doing. Telecinco is the market leader among over-the-air networks, so they have perhaps not been as aggressive as we have."

In the U.K., where digital switchover is to be completed by 2012, DTT started in 1998. A consortium of ITV companies Carlton Tele?vision and Granada Television with pay operator BSkyB won the auction for three commercial multiplexes and launched ONdigital. After Sky was forced to withdraw on antitrust grounds, the fledgling DTT service found itself going head-to-head with the dominant digital satellite platform. In an apparent attempt to emulate Sky’s own success with the Premier League, ONdigital’s ITV Sports Channel acquired the rights to the Football League (the division below the Premiership) for a heady ?315 million over three years. But ONdigital never made it through the first season. In 2002, a new consortium called Freeview took over the DTT multiplexes. Freeview is owned and run by its five shareholders: ITV again, plus BBC, Channel 4, BSkyB and Arqiva. Freeview is planning to roll out HDTV in 2009.

Freeview had 16 million homes as of July 2008. In 2007, 9.7 million branded products were sold. It now has more than half of the PVR market. Its big selling point is that it offers the only PVR without a subscription. In July, Freeview announced the rebranding of its PVRs as Freeview+.

Another DTT platform, Top Up TV, launched in March 2004, took over other DTT frequencies, and now has its own proprietary set-top box. Top Up is a pay proposition in that it sells subscriptions. Some pay options are also available via Freeview, which offers Setanta and works with BT Vision.

A new wrinkle arrived with the launch of Freesat, a free-to-air digital satellite TV service, in May 2008. A joint venture between the BBC and ITV, Freesat, like Freeview, is a not-for-profit venture aimed at increasing the quality and value of free-TV content. Unlike Freeview, Freesat has included BBC HD and ITV HD from the start.

Freesat (which can be received on the same dish as BSkyB with a different decoder) launched with all of the BBC and ITV digital channels plus Channel 4’s digital channels, news channels BBC News and Al Jazeera English, children’s channels CBBC, CBeebies and CITV and music channels Chart Show TV and The Vault. It added 18 new offerings over the summer. "We plan to have up to 200 channels on air by the end of the year," says Will Abbott, Freesat’s marketing and communications director. "One of the benefits of Freesat is that it is technically superior to Freeview. We have a lot more channel capacity, and we are already offering HD. Also, when it comes to the future, our platform is designed for easy innovation without the need for hardware replacement."

Abbott says that pay content could be part of Freesat’s offer in the future, though "not in the short term," if it makes sense to offer it. "We are designed to be flexible," he says, stressing that the primary purpose of the venture is about the free offer.

FRENCH FARE

In France, the national switchover to digital is to be completed in November 2011. Before DTT got off the ground, French authorities decided on a policy of "equilibrium" between the free and pay offers. Thus far, 11 pay-TV DTT channels have launched since 2005.

Lately, the DTT audience has soared, from a 4.8-percent share (all 4+ individuals) from January to June 2007 to 10.2 percent in the same period this year. Meanwhile, the shares of the main terrestrial channels have slipped, from 30.9 percent to 27.6 percent for market leader TF1 and from 11.7 percent to 11.2 percent for M6.

TF1 has said that DTT will be the driver of digital growth as the cable and satellite offer stagnates. Regulators were also keen to bring new players into the television picture. So, the big NRJ radio group has music channel NRJ 12, and Lagardè²¥ has Virgin 17 (previously Europe 2 TV, rebranded at the start of 2008). The Canal Plus channels are available, but there is a new pay player in TV Numeric, which offers seven premium channels plus 18 free DTT channels for ?8 per month (plus ?5 for the decoder rental). The pay channels are Paris Premiè²¥ from M6, TF1’s LCI and Eurosport, and TF6, owned by M6 and TF1 together, plus Planè´¥, AB1 and Canal J.

"In France, the television market is becoming more and more complex every day," says Blandine Dumoncel, TV Numeric’s head of marketing and communications. "People have multiple options between ADSL, cable, satellite or DTT, and many of them don’t understand how to see good television for a good price without connecting more and more devices."

TV Numeric has been applying a threefold strategy to attract subscribers. "First, we rely on the quality of our channels, which are well known by the public," she says. "Second, we have a low subscription price relative to other choices in the market. Third, there is no device to buy. The decoder only requires the Hertzian antenna to work."

TV Numeric is aiming to attract two types of subscribers. "One group is those people who have never been subscribers to any pay-TV system, and who can be attracted by the low price and the easy access of TV Numeric," Dumoncel says. "The others are people who were subscribers to a pay-TV system, but have been disappointed by it because they realized they didn’t need to pay a high price for a 200-channel system when they only wanted to have ten pay-TV channels."

The M6 Group’s W9 is the leading digital channel in France, with a viewing share that has climbed from 0.5 percent in 2006 to 1.3 percent at the end of 2007 in all homes, and 3.5 percent in digital homes. Launched in 2005, W9 offers a mix of top movies such as X-Men 2 and series such as The Simpsons. Its top audience last year was for the film Bad Boys with 790,000 viewers. M6 expects W9 to reach 95 percent of the population in 2011.

Paris Premiè²¥ focuses on culture and discussion plus premium events, but includes series such as Frasier and Scrubs. Its audience was up 32 percent in 2007 over the previous year. The top program was a UEFA Cup match featuring Paris Saint Germain with 570,000 viewers.

The women’s channel T鶡, operating for more than a decade, became 100 percent owned by M6 at the start of last year. Its viewing share was up 37 percent in 2007 and about 3 million women per week now tune in.

Digital channels have become more important for the group, bringing in advertising revenues of ?60.5 million last year, an increase of 51 percent over 2006. The digital channels accounted for 7.4 percent of total group revenue at M6 in 2007, up from 5.9 percent in 2006. Moreover, they have now moved into the black, producing a profit of ?300,000 in 2007, turning around from a loss of ?2.6 million in 2006.

THE ITALIAN MIX

In Italy, where the digital switchover is to be completed by 2012, there is also a blend of free and pay DTT, weighted toward the latter in terms of market impact, thanks to football rights and a marketing approach based on pay-as-you-go subscriptions.

The sales of DTT decoders reached 1.9 million from January to November 2007, and there are now more than 6.5 million homes equipped. At the end of 2007, Italy had ten digital multiplexes nationally and 1,800 on a local or regional basis. DTT offers 28 channels free nationally, nine of them being the same as the analogue networks and 19 new ones.

RTI offers 11 channels, including three new DTT-only channels (Boing, Iris and Bis), and five others (Class News, BBC World, Coming Soon, Sport Italia and Sport Italia Live 24).

Boing, owned by RTI with Turner Broadcasting, is the first 24-hour free channel for children. Since September 2007 (when Auditel began to incorporate DTT figures), Boing has averaged 34,000 viewers and a 0.33-percent share among all individuals, and a 2.66-percent share in the target children’s audience, ranking second to Disney Channel. Iris, launched in late 2007, and Bis, just getting started, are movie channels for art films and modern cinema.

Looking at the ad-supported DTT market, Mediaset puts a strong emphasis on the interactive possibilities of the DTT offer. Its new program guide has applications that effectively give clients positions on the guide for interactive advertising. Indeed, about 20 percent of the guide is used by advertisers.

Italy’s peculiar situation is that there is only one dominant commercial operator in the terrestrial market. Unlike in the other markets, the pay offer is a key element in Italy, where Mediaset, entirely dominant as a commercial operator in terrestrial, has viewed the platform as a way to compete with SKY Italia.

Mediaset Premium, launched on DTT in 2005, is a combination of pay-per-view and prepaid subscription. In 2007, Mediaset Premium sold 2.25 million rechargeable smart cards for accessing its channels, and more than 6.27 million recharges. Cards are available in about 2,000 sales outlets, with recharges in 60,000 locations. In 2007, bank ATM machines started offering recharges.

Premium Calcio offers all the live games of the biggest clubs, such as Juventus, AC Milan, Inter and Roma, for ?6 per match or ?129 per season for the least expensive package. In 2007, it added exclusive DTT coverage of the Champions League.

The extensive movie offer—deals are in place with Disney-ABC, Sony, Warner Bros., Universal and others—is priced at from ?2 to ?4 per film. Mediaset Premium also shows the likes of The O.C., Smallville and The Sopranos.

GERMANY’S HEAD START

In Germany, analogue is to be switched off sooner than in the other large markets, at the end of 2008. DTT was started in Germany in August 2003 in the Berlin-Brandenburg region, which was the first part of the country to achieve full analogue shut-off. Media Broadcast, the technical DTT operator, achieved the complete switch to digital within 12 months. Berlin now has 30 channels on DTT. In the other main population areas, such as the capital cities of the various states, there are 18 DTT channels, which are provided by the main national networks. Public broadcasters ARD and ZDF both offer four channels, and there are regional channels (SWR, WDR, BR and NDR). "In addition, the RTL and Sat.1 groups have DTT channels in those areas," says Wolfgang Speer, Media Broadcast’s head of communications. "In the rest of the country, the offering is limited to the ARD, ZDF and the regional packages. But there are no channels being run exclusively for DTT in Germany yet." No doubt they will arrive.