The prospects for digital terrestrial TV in Europe
By Alexander Shulzycki
Europe’s initial experiments in commercializing Digital Terrestrial Television (DTT) in the UK and Spain have ended in failure. But like all unsuccessful experiments, if the experimenter believes that his hypothesis is valid, i.e. there is a viable business model for DTT, he will try and try again under different conditions.
Figure 1. Even building in the inevitable regulatory and technical delays, it is reasonable to anticipate that most markets will have some form of DTT up and running by 2005.
In the UK, Spain and across Europe, DTT planners have gone back to the drawing board and are learning from mistakes, developing new approaches, and welcoming some fundamentally improved market conditions. It is far too early to sound the death knell for DTT.
The European Broadcasting Union, as a representative of the leading free-to-air broadcasters in Europe, is clearly interested in the future of the terrestrial spectrum. In the last quarter of 2001 into the early part of this year, the EBU’s Strategic Information Service undertook an exhaustive study covering all of Western Europe. Its general aims were to evaluate the progress of DTT in the launched countries, to find out what plans governments and companies are making in countries yet to launch, and to analyze the market opportunities and the potential obstacles.
One key conclusion is that the demise of ITV Digital in the UK and of Quiero in Spain were failures of two business models in two countries that were managed and operated under specific market conditions. The prospects for DTT are better than these experiences may indicate, not only because any new venture will take into account the lessons learned — namely, avoiding direct competition with the cable and satellite pay operators and avoiding the set-top box (STB) business — but also key market conditions have changed — most notably STB prices are nearing the threshold for mass adoption. The recent appearance of sub-150 euro boxes in Europe may be the decisive signal that the much-awaited horizontal market for STBs is on its way.
DTT has the potential to transform the most basic form of television on which 36 percent of Europeans still rely exclusively. But in doing so, it will shake up the status quo and threaten the existing order among incumbent broadcasters, platform operators and other entrenched interests. By its nature, therefore, DTT planning is extremely controversial. Just listen to the current debate in France, where channel applicants are making their cases to regulators. Besides being highly entertaining, the process reveals that beyond technical issues and market dynamics, DTT’s future is linked closely to the realm of politics.
According to current plans, by the end of 2004, at least 11 countries should have launched DTT platforms. Even building in the inevitable regulatory and technical delays, it is reasonable to anticipate that most markets will have some form of DTT up and running by 2005. (See Figure 1)
All countries have begun to perform frequency planning and coordination for digital terrestrial spectrum, and all have begun testing digital transmissions, at least in limited geographical regions. After that, the progress towards DTT diverges.
The UK, Sweden, Spain and Finland have launched, but all except Finland are reformulating their strategies. Sweden is considering a variety of new approaches, including vouchers for free STBs distributed to license fee-paying TV households. The Netherlands and Portugal will launch by the end of next year with broadly similar approaches. By the end of the year, Germany will introduce a DTT platform, although it will cover Berlin only.
French regulators have established a clear framework for DTT introduction, and services should start in the fall of 2003. All other countries will launch after that, although there is a chance that Denmark and Norway could accelerate launch plans.
By this fall, Finland will have a strong offer based on an open market for STBs, a common technical standard and unprecedented cooperation among broadcasters. In August 2001, the country soft-launched a platform that was not based on a single commercial operator approach, but allocates channels and multiplexes separately and relies on an open market for STBs. Twenty thousand boxes had been sold by the first quarter of 2002. Important for the long-term is Finland’s implementation, the first in Europe, of the open standard Multimedia Home Platform (MHP), which will facilitate the development of interactive services once demand is there.
Potential drivers
The popularity and revenue potential of interactive television services has disappointed expectations for many digital platform operators and DTT planners. With limited bandwidth, DTT must take a different approach, and Finland may be an interesting test case.
Broadcasters there are developing MHP applications, and compatible boxes will become available this fall. In May, the Finnish National Lottery began a service to DTT subscribers that was developed using MHP, with an IP return channel. The application is user-friendly, light on capacity and an example of a popular service with revenue potential that can be exploited by DTT. Three-quarters of the population play Lotto, and they each spent more than (US) $400 in 2001.
In May, the Finnish National Lottery began a service to DTT subscribers that was developed using MHP, with an IP return channel.
Portability and mobility are unique to DTT and give it a genuine advantage over cable and satellite, but both features are untested. In the Netherlands, where less than 5 percent of households use terrestrial reception exclusively, the new Digitenne platform will target owners of secondary television sets. Mobility’s potential will be tested in Germany, where DTT planners are facing the challenge of an already rich analog channel offer.
Key for success
Many countries soon to launch have put DTT into the hands of single commercial operators that are backed by a broad coalition of media players. In the UK, the chance to resuscitate the failed DTT venture will go to a consortium lead by the BBC and Crown Castle supported by BSkyB content. Many had argued that even this was not enough and urged UK regulators to combine bids so that commercial broadcasters would not be excluded. Still, this is a step in the right direction because for any DTT venture to succeed, it needs the support of as many key players as possible.
The leading commercial broadcasters have exhibited ambivalence and demanded favorable conditions before joining DTT efforts. Smaller channels are important for establishing a wide offer for DTT audiences, but with limited advertising potential, favorable carriage deals are necessary to get them on board. Pay-TV operators, also important for creating a rich offer, balk at additional transmission costs and are often allied with cable or satellite platforms. Indeed, it is the cable and satellite industry that has the most to lose. Ways must be found to, if not to get them involved directly, at least to dissipate their opposition.
Unrealistic target dates
Another key finding of the report is that most official target dates set by national governments for analog shut-off do not correspond to realistic expectations of DTT penetration. This could slow development, especially in the last stages of digital conversion when the buying decisions of reluctant analog households will be strongly influenced by their perception of what the true analog switch-off date will be. If this date is not known, promulgated, reliable and stable, the tail end of digital conversion will lag.
Alexander Shulzycki is a senior media analyst for the European Broadcasting Union.
