Switching On

April 18, 2011 World Screen
Digital terrestrial television, whether free or pay, is offering audiences across Europe a better viewing experience.

Terminology sometimes gets in the way of clarity in the tele­vision business and this is probably the case with digital terrestrial television (DTT), a fancy name for a familiar concept. With the switch-off of analogue transmission in progress across Europe, traditional broadcast television automatically becomes digital terrestrial, so in a way DTT is simply broadcast television by another means. Nowadays we’re getting to the point where television sets for sale in the shops are ready to receive digital signals without any extra equipment. Getting DTT, on a free basis at least, thus becomes just like tuning in the old analogue—only there’s more of it to see.
 
“The main selling point of DTT is that it’s an incredibly simple way to get more free TV,” says Richard Lindsay-Davies, the director general of the Digital TV Group, the industry association for digital television in the U.K. “It can be basically self-installing.”
 
Much of the expanded choice comes from the traditional broadcast networks as they push to diversify in the new environment, adding new channels to the old analogue offer.
 
In Spain, where analogue has been switched off, the national DTT lineup was completed in 2010, and it highlights the degree to which DTT is an extension of analogue broadcasters onto a new platform. Of the 33 DTT channels (30 free and three pay TV), no fewer than 25 are operated by the dominant terrestrial networks: RTVE has six DTT channels, Antena 3, Telecinco and laSexta have five channels each, and Cuatro has four. But the long-term aim is to accommodate over 1,000 local/regional channels (the rollout of these has been sporadic to date).
 
The importance of DTT as a platform naturally depends on the distribution landscape in the individual markets. In Germany or Holland, for example, where there is plenty of cable, it is not really significant, but in France or Italy it has a major impact.
 
The M6 Group’s W9 in France is the most successful free DTT channel in Europe. In 2010 it registered an overall viewing share of 3 percent and a 3.9-percent share in its target demo. The channel pulled 45 of the top 100 audiences for DTT during the year. Since carrying the local version of The X Factor in 2009, it has moved into talent shows of its own with the likes of Talent tout neuf: le live(All New Talent: Live) and scored with the format-based Taxi Cash. W9 also showed the extreme athlete Taïg Khris breaking the world record for the highest roller-skate jump—he leapt off the Eiffel Tower.
 
The M6 flock of DTT channels outpaced the main M6 network in revenue growth in 2010, generating €168.9 million, up 14.8 percent (M6 grew 10.7 percent to €677.9 million).
 
 

LIMITED CAPACITY

 

Perhaps the most important distinguishing characteristic of DTT as a technology for delivering television is that it has less capacity than cable or satellite. Even in the digital age, terrestrial TV capacity is still limited by being confined to the UHF spectrum, as is analogue. That can put the platform operator in a relatively strong position in negotiations with channels. Such is the case for Freeview in the U.K.
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“Freeview is the promised land for us as an operator of free channels,” says Remy Minute, the managing director of CSC Media, which operates four children’s channels, seven music channels, True Movies 1 and 2 and True Entertainment—more basic channels than anybody else in the U.K. market. “The problem is the cost.”
 
Freeview keeps working to squeeze more and more channels onto the platform and new slots come up now and again, but the price has escalated from the early days when DTT was a novelty. In 2001, when analogue switch-off was on the far horizon, Freeview was asking an estimated £1 million per slot and there was not exactly a rush of buyers. Now the same slots go for £8 million to £10 million per year. It’s very much a seller’s market.
 
The U.K. currently has five DTT multiplexes in standard definition, one owned by the BBC, one shared by ITV, Channel 4 and Channel 5, one owned by ITV alone and two belonging to transmission company Arqiva. In addition, the BBC owns the HD multiplex and leases capacity to other channels. There is talk of adding two more multiplexes.
 
Like Spain, Germany has completed the switch off of analogue transmission (in December 2008). But only about 10 percent of households depend on DTT as their only means of reception. The end is nigh in the other major markets. France plans to complete switch-off by November of this year, and Italy and the U.K. have set a target of late 2012.
 
The analogue terrestrial switch-off has now taken place in 17 European countries. The total number of channels on DTT networks in 27 E.U. markets plus Turkey and Croatia is now almost 1,500, according to research conducted for the European Commission. That total includes a very large number of local channels, which are available on the DTT platforms in 13 countries and are especially plentiful in Italy, Spain and Denmark.
 
The number of national and international channels available to DTT households has grown to 760, up from 500 in the spring of 2009. This includes almost 40 multi-country brands, such as the Discovery channels, Eurosport, CNN and BBC World.
 
Because delivering free TV is DTT’s driving force now and it has become the default platform for delivering the main national networks that were on analogue, it’s easy to overlook that it is also an addressable platform akin to cable or satellite, which can deliver subscription services, too. In fact, DTT really began as a pay platform, a short-lived incarnation that effectively ended when Quiero TV in Spain and ITV Digital in the U.K. both crashed in 2002.
 
The pay potential is very much alive and the question remains as to what extent operators and content providers will try to adopt a subscription business model. Of the 760 channels across Europe, 345 are on free platforms and 415 are on subscription platforms. Pay DTT services are available in 14 countries, including the biggest markets.
 
Public channels continue to play an important role on the free platforms. About 25 percent of total channels on DTT come from public broadcasters. The proportion tops 33 percent on free-DTT platforms but is less than 10 percent on the pay platforms.
 
On the free platforms, generalist channels account for 36 percent, entertainment and fiction 15 percent and sport channels and movie channels only 2 percent each. On pay networks, channels based on entertainment and fiction account for 19 percent of the total, sport channels 18 percent and movie channels 10 percent, while generalist channels make up 8 percent. Live football, of course, figures prominently in the marketing of pay DTT in markets such as the U.K., Spain and France.
 

PLATFORM COMPETITION

 

The British market, where about 92 percent of the digital switchover is complete, has evolved as a test lab for the way the free-TV future is going to pan out. The DTT platform, Freeview, has been going for eight years. The partners are the main broadcasters BBC, ITV and Channel 4, plus the pay-TV company BSkyB and the broadcast transmission company Arqiva.
Freeview is unencrypted. Anybody can make a box. If you want the Freeview badge of approval on it, you need a license. Freeview does not control its technology. That falls under a company called DMOL, owned by the BBC, ITV, Channel 4 and Arqiva.
 
Freeview has a pay bouquet called Top Up TV, launched in 2006, whose main selling point is Premier League football available via ESPN for only £9.99 per month. Sky Sports channels have also been available since mid-2010, at over £30 per month.
 
“Top Up TV has been reasonably successful with pay on Freeview,” says Digital TV Group’s Lindsay-Davies, “and there is quite likely to be some increase in the pay-TV offer as the regulatory regime eases. But terrestrial is not able to compete with satellite and cable in what it can offer because of the relatively higher transmission costs and the scarcity of spectrum. It does not lend itself as well to pay.”
 
There is another competitive wrinkle in the U.K.—a free-TV offer on satellite. Called Freesat, the platform is owned by the BBC and ITV. Their channels perform better on their own satellite platform than on Sky.
 
“Freeview is very much the new analogue,” says Emma Scott, Freesat’s managing director, who was the launch director of Freeview. “It’s terrestrial entry-level television. That’s fine. Not everybody wants lots of channels. But we are moving to a world where BBC will be all high-def. HD will be the norm, as in Japan. And there is no scope for that at present with DTT.”
 
Basically, Freeview wants to upgrade terrestrial customers to more choice, while Freesat wants pay-TV customers to downgrade to free. There are 14 million homes in the U.K. with satellite dishes. The Freesat box is different from Sky’s, but the dish points the same way as the Sky dish. Consumers can opt out of Sky and switch to free satellite after investing in the Freesat box, priced at only £30 for the standard definition version; HD, the more attractive option, is priced at £65 and also offers an ethernet port which makes it possible to access IPTV and use timeshift options such as BBC iPlayer (ITV’s version is launching soon).
 

ITALIAN HITS

 

Italy is the only major market where DTT has emerged as a viable alternative pay-TV platform, challenging satellite head-on.
 
Italy is far and away the most successful in pay DTT. The subscription count of 3.6 million active smart cards for Media­set’s DTT platform is probably bigger than all the rest of DTT pay subs in Europe put together.
 
The Italian DTT network is made up of 15 multiplexes offering over 40 free channels and 50 pay channels nationally, with about 200 local channels available free of charge—a picture that looks remarkably similar to the old analogue market with its hundreds of channels.
 
The Mediaset Premium platform has about 30 channels offering league football, film channels and children’s channels. In 2011, Mediaset reached deals with BBC Worldwide Channels and Discovery Networks Europe to create new documentary pay-TV channels exclusively for Mediaset Premium starting in March. The platform will add BBC Knowledge and Discovery World.
 
Another platform in Italy is operated by Centro Europa 7, offering a dozen channels under the Fly Channel brand, including the only DTT adult channels.
 
The Italian market may be entering a new phase of DTT competition. Authorities decided in early March that satellite pay TV Sky Italia would be permitted to take part in the contest for the assignment of DTT frequencies. Last year the European Commission accepted plans for Sky Italia to bid for DTT on the condition that it stuck to offering free TV until 2015. The Italian government, led by Mediaset founder Silvio Berlusconi, was opposed to the approval.
 
In the Nordic markets, DTT has also emerged as a big player in pay TV. Boxer TV Access, owned by Swedish state-owned broadcast infrastructure group Teracom, operates DTT in Sweden and Denmark and its PlusTV subsidiary is the leading pay-TV operator in Finland.
 

HD CHALLENGE

 

The arrival of high definition as a mainstream product is pushing consumer demand up the scale, increasingly becoming the norm and no doubt an expectation of the future. But delivering HD requires more capacity. This was not part of the original DTT picture.
 
While having limited capacity can help platform operators in price negotiations, DTT struggles to accommodate high-definition. In the U.K., a DTT multiplex is limited to four channels in HD instead of up to 10 in SD (standard definition). Digital has helped, but terrestrial is still considered the poor relation in comparison to satellite or cable. Being fibre-based, cable has the most potential of the three technologies to add channels.
 
HD launched in Spain last year and there are three national channels and ten regional channels offering high-definition programming free of charge. Other markets with HD offers are France (four free channels nationally and one pay), Italy (Mediaset offers HD movies and sport), Estonia, Finland, France, Hungary, Lithuania, Norway, Sweden and the U.K., where Freeview launched HD in the spring of 2010.
 
To date Freeview has sold about 1.2 million HD boxes. Freeview HD offers access to BBC One HD, the BBC HD channel, ITV1 HD and C4 HD in addition to a more limited range of channels in standard definition than the usual package. 
 
“We know from talking to Freeview viewers that having high definition is becoming the standard when considering what type of equipment to buy,” says Ilse Howling, the managing director of Freeview. “As Freeview HD continues to roll out to new areas of the U.K. this year, it’s exciting that Freeview can meet this need by offering quality HD channels without a subscription.”
 
In Sweden, Boxer launched HD in late 2010 with five channels, both free TV and pay TV. The group has stressed that it’s a big step. Coverage for HDTV is about 70 percent with the goal of covering the whole country.
 
Italy is again ahead of the curve. In late 2010, Mediaset, which launched HD early, tested the first 3D service on DTT. Arqiva has discussed options for delivering 3D broadcast services over the U.K.’s DTT networks. But HD already gives DTT platforms plenty to swallow without adding another dimension.
 
 

UPGRADED DEMAND

 

The mere fact of being digital does not make DTT cutting edge. The advent of broadband has made TV through the PC not only a reality, but increasingly the mode of choice for young people.
 
In Spain, Antena 3’s DTT channels Neox and Nitro have been big successes, with about 4 percent of the viewing market. But even so, the group is looking beyond DTT to what it calls “Antena 3.0.” Referring to the emergence of mobile telephony, Internet TV and other platforms, group CEO Silvio González says, “We have strategically decided to be exactly where the viewer is, independently from when, how or where he decides to see our product.”
 
That is the same refrain one hears from the big broadcasters elsewhere. ITV’s chief executive, Adam Crozier, has said his goal is to see that the company has a revenue base that balances “free and pay TV as well as linear and non-linear viewing.”
 
But all of this is not really bad news for DTT. It’s not an either-or scenario. “Broadband is actually positive for DTT in that it will play a supporting role for a proposition that would not be competitive without it,” says Digital TV Group’s Lindsay-Davies. “Broadband will probably help sustain homes in Freeview by making more on-demand and à la carte programming available. We already require an ethernet connection in the Freeview box, which enables catch-up TV. Our newest specs will prescribe more connectivity. I see broadband as a complement to DTT, not a challenge.” 
 
In the U.K. ,YouView will be the next IPTV entrant in the market. The partners are again BBC, ITV, Channel 4 with Arqiva, just like in Freeview, plus Channel 5. And this time there are telcos on board, BT Vision and TalkTalk. YouView requires customers to buy a box, which would be supplied by the telcos for the bundled customers. BT Vision and TalkTalk want to do a bundled version of YouView. In February the YouView partners delayed the launch until 2012, blaming the “scale and complexity” of the project. The initial target for YouView is about 3 million subs. There will be a Freesat version of YouView as well.
 
While YouView remains under wraps, the broadcasters remain without their own Internet-enabled pay platform, while Sky and Virgin Media are already marketing set-top boxes with greater connectivity.
 
In Italy, Mediaset is doing better in extending its offer to broadband by introducing Premium Net TV, a brand new “over-the-top” TV system offering catch-up TV of all of Mediaset’s channels during the past week plus access to a library of over 1,000 programs, including 200 movies available 24/7.
 

When DTT providers offer that sort of seamless connectivity, capacity suddenly looks like less of an issue.