Digital doldrums

THEY are not making much of the funeral, but today ON-digital is officially dead. The pay-TV service owned jointly by Carlton and Granada, arch-rival of Sky Digital, is henceforth to be known as ITV Digital. The relaunch, following City gloom that has seen the share prices of its backers fall dramatically in recent months, is an admission that ONdigital has failed to sell enough subscriptions, and needs to take urgent action if public confusion about digital TV is to evaporate.

Since being launched in late 1998, ONdigital has swallowed up 800 million and it will need at least another 300 million before it begins to break even in two or three years time. But many industry experts believe today s move may sow yet more confusion in viewers minds.

Concern that ITV Digital may go under is now so great that last week Greg Dyke said that unless the Government gave the green light for the BBC s proposed new digital channels, Whitehall s plans to switch off the analogue signal between 2006 and 2010 would be unfeasible. He also knows that unless matters improve for ITV Digital, the market will almost certainly end up being controlled by Sky.

In a fortnight, Sky will announce record subscriber growth for its digital service but the company has had a rough time of late. In May, BSkyB reported a pre-tax loss of 176.4 million for the nine months to March. Three hundred job losses were announced. City experts, however, expect the firm to move into profit this year.

It s too early to say if digital TV is dead in the water, says Stephen Barnett, professor of communications at the University of Westminster, but anyone who thinks the majority of viewers will be able to receive digital TV within 10 years is talking out of their armpit.

Has digital TV taken off?

Yes it has. Around a third of homes now have it, mostly through Sky, says Will Wyatt, who helped to devise the BBC digital TV strategy as John Birt's de facto deputy. The problem is that after the initial excitement, the take-up rate has slowed down and it looks as if there will be a sizeable rump of viewers who are just not interested in getting digital.

Recent research by the Department of Culture, Media and Sport confirms this.

At the moment, 30 per cent of households have digital; the DCMS study estimates that an extra 25 per cent of the population will cross over by 2006, the earliest target for analogue switch-off. No government would ever leave such a large proportion of the public 45 per cent without a working TV set.

Leading City media analyst Neil Blackley of Merrill Lynch is cautiously optimistic that take-up of digital TV can reach the Government s later target of 2010 but probably only if a rule- change allows Sky to have a stake in its rival.

He says: It s achievable, but there are problems.

For a start, unless the churn rate [the number of customers who cancel their subscriptions] at ONdigital, currently around 30 per cent, decreases by November, it will be difficult for them to survive without the regulator allowing Sky to take an equity share. Then, the two services could be marketed complementarily rather than antagonistically. But more important is the introduction of a box that would allow subscribers to access and switch between competing digital services simply by using a smart card.

Unfortunately, this is not on the Government s radar screen.

ROB Fyfe, ONdigital's managing director, s upbeat. He says: I predict that by 2006- 2007 every viewer will have some element of pay TV, even if they re only paying 2 a month, just as everyone will own a mobile phone.

At present, the only way of receiving digital channels without having to pay subscriptions (packages start at around 10 a month for a very basic service, but to have the premium sports and movie channels, Sky charges more than 30) is to own or rent a so-called integrated digital set.

Although the price of these has begun to come down, out of 6.2 million sets sold last year, only 94,000, or 1.5 per cent, were digital, according to the British Radio and Electronic Manufacturers Association.

What the market needs is a modest-sized portable set that will pick up the digital signal and sell for around 200, says Will Wyatt.

At present, the free to-air digital channels, including ITV2, BBC News 24, BBC Choice and BBC Knowledge, have clearly not driven digital in the way that sport and movies originally persuaded people to shell out for Sky. Moreover, research shows that while digital provides viewers with hundreds of choices, once the novelty has worn off, people tend watch only a tiny minority of the channels on offer between eight and 12.

By rebranding as ITV Digital, the company hopes to encourage audiences to switch more freely between free and pay services. Even so, the TV industry knows that it has a real fight on its hands. For the foreseeable future digital TV looks like being an option that most viewers prefer to avoid. How policy makers mop up the mess is anyone's guess.

Copyright 2001
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