A significant statement on the future of digital terrestrial TV came yesterday via German online publication W&V. RTL, the leading commercial broadcaster in both Germany and Europe as a whole, will begin to remove its leading channels from the DTT (DVB-T) service beginning in June this year in Munich. By 2015 the RTL, Vox, Super RTL and RTL II channels will no longer be available on any DTT service throughout Germany.

RTL’s Marc Schröder, who is responsible for RTL Deutschland’s strategic business development, gives a number of reasons for this decision. The two key factors are political uncertainty and unproven business model. The fact that terrestrial frequencies are under pressure to be used for mobile services now makes it impossible for RTL to justify long-term investment in digital terrestrial television services. In any case, DTT currently only accounts for 4.2% of RTL’s audience: the vast majority of viewers use cable, satellite or IPTV services. By RTL’s estimation DTT is therefore by far the most expensive broadcasting method: thirty times more expensive than satellite.

RTL also dismisses DVB-T2 technology (which offers greater compression and the potential for more HD channels) as a possible DTT saviour. While DVB-T2 would allow for encrypted channels and pay services, RTL sees no possibility that the media authorities support this concept of DTT’s future.

The importance of RTL’s decision is underlined by our ConsumerMetrix research on Germany’s favourite TV channels. The RTL channel ranks only slightly behind pubcasters ARD1 and ZDF, with 58% of Germans saying it is a “must have” channel. Vox rates at 33% and RTL2 at 19%. DTT is likely to be badly affected once these channels disappear.

 We have long debated the future role of DTT in the overall communications landscape. As I have often noted in client meetings, if we were to design the entire system using a blank piece of paper we would never have used wireless services for broadcasting television to fixed antennas: wireless networks are fundamentally more suited to mobile applications whereas fixed, in-home devices should be served by wired or non-mobile networks. DTT is the evolution of a legacy model stretching back some eighty years and still has a strong role to play in many parts of the world as a result. But RTL has cast significant doubt on its future in a major market and it may not be long before we hear similar discussions in other parts of the world.

David Mercer

Away from the controversy caused by the inevitable if justified hoopla surrounding Samsung's legal battles with Apple, the Korean giant was pursuing its strategic visions on several fronts at last weekend's IBC show in Amsterdam. The vision was made more evident at one level as David Eun, EVP Global Media Group, discussed the company's options in the content industry. Of most note was his admission that we should not completely rule out Samsung's entry into the content business as developer or owner ("Never say never"), although in general Eun, who was appointed to the role in early 2012, hedged his bets on specifics regarding the company's relationship to the content industry. Samsung "will take a slice of the content value chain" and all options remain open.

The most significant demonstration at the IBC show was on Samsung’s booth, where the company was demonstrating the pay TV app which will be launched later in 2012 by TeliaSonera’s Estonian subsidiary, Elion. This was the closest thing we have seen so far to a virtual set-top box implementation. The app or service runs the entire portfolio of Elion pay TV channels and VOD services, and also provides a virtual (cloud) DVR functionality to replace the hard disk drive which would appear in the (real) set-top box solution.

Most impressive of all was the way in which the pay TV takes over control of Samsung’s smart TV. As soon as the user signs up to Elion’s service via the app, it becomes the default setting, overriding even Samsung’s own Smart Hub. If the viewer switches off the TV at night after watching Elion’s TV channels, as we would expect, the TV boots straight into the Elion app when switched on again in the morning. In order to exit Elion the viewer must select the input select button on the remote control in order to get back to the “regular” TV functions, including the TV’s built-in Smart Hub. We know well from our user experience research that this is not something many consumers will find easy.

The Elion demonstration illustrates the degree to whcih the traditional video ecosystem may be disrupted by apps and cloud technologies over the coming years. Clients wanting a deeper analysis can consult our latest Insight report.

A report was released by the UK Government's Lords Select Communications Committee while I was on holiday a couple of weeks ago but I thought it was worth flagging it up. The report, Broadband For All - An Alternative Vision, speaks to an issue I have been discussing with clients for many years, namely the fact that, given a blank sheet of paper in the 21^st century, we would never design our communications infrastructure to use terrestrial broadcast (wireless) spectrum to deliver television services to fixed devices.

Even when many things are converging, there remains a fairly clear distinction between a device or screen which remains largely or wholly in a fixed position (the large screen TV being the best example) and devices which are, to one degree or another, intended to support portability or mobility (the best example being the smartphone). The nature of communications technology dictates that if we deploy a combination of wired and wireless connections it makes sense to aim wires at fixed devices and wireless at mobile. That all assumes, of course, that we need wired connections at all, since if wireless could support every application then it would even be preferable for fixed devices. But if we assume that large screen television is going to place ever greater demands on networks (through HD, 3D, 8k and an ever growing numbers of channels, applications and screens) it is safe to assume that wires have some role to play for the foreseeable future. (Even the most aggressive 4G proponents are not claiming this technology could completely replace broadcast TV platforms any time soon.)

These are the main arguments behind the Committee’s recommendation to consider moving all current terrestrial broadcasting to the Internet:

“We recommend that the Government, Ofcom and the industry begin to consider the desirability of the transfer of terrestrial broadcast content from spectrum to the internet and the consequent switching off of broadcast transmission over spectrum, and in particular what the consequences of this might be and how we ought to begin to prepare.”

As an industry representative I can offer one immediate topic for discussion: how could the role of the television licence fee be altered to meet this objective? Reaction to the Broadband For All report has already demonstrated a common misconception: that terrestrial broadcasting is currently “free”, and therefore also a false question, namely “how can broadband be paid for when one of its main purposes is to support free television?” Of course, television does not come free, even when viewers can watch it without subscribing to Sky or Virgin Media. UK residents have to pay the annual licence fee of £145.50 ($227) in order to receive any television services, and other “free” services are supported by advertising. These income streams indirectly pay for the broadcast transmission services which currently support over-the-air broadcasting.

So if the Committee’s wishes are ever fulfilled it would seem that some of the licence fee should be diverted towards funding broadband, whether in its establishment or maintenance and operation. Broadband service providers will certainly be interested to know who is going to pay for the vast amounts of data which broadcast-equivalent internet television services would consume. One way or another the topic of the licence fee will inevitably become a key element in the broadcast switch-off debate.

Incidentally, it’s also good to see another of my long-held views (see Time to End This Broadband Nonsense: Ofcom Must Enforce Minimum Speeds) being reinforced by the Lords Committee, namely the demand to avoid the meaningless “up to” broadband speed marketing of the ISPs and focus on minimum requirements. “We recommend that the Government's targets should refer to minimum and median levels of service, and that Ofcom adapts its scorecard accordingly.” Hear, Hear!

David Mercer

Freeview's Managing Director, Ilse Howling, today warned UK regulators and politicians that the free digital TV service could only continue to grow if it had access to the 600MHz and 700MHz bands. Speaking at this morning's Westminster eForum event, she also reconfirmed her company's opposition to the current proposals for use of the 800MHz band by 4G services, which could, according to Arqiva's Charles Constable, lead to many more than two million homes losing access to some or all Freeview services.

Howling praised the Government's decision to fund the cost of the filters required to minimise disruption to television services, but criticised the fact that there was currently no proposal to fund the cost of installing these devices in homes, which is estimated at between £150 and £160 per home. Howling believes that the 'polluter pays' principle should apply, the 'polluters' in this case being providers of 4G services, in case there was any doubt.

Howling's position was supported, not surprisingly, by the DTG's Richard Lindsay-Davies, who said that management of 4G spectrum and white spaces were the most important challenges facing DTT's future. To that end he announced that the DTG's own test centre had been chosen by the UK government to assess the threat of 4G interference with DTT receivers. Professor Sylvia Harvey made the important point that the term 'interference' is inappropriate in the digital world, since rather than deteriorating gradually or suffering partial degredation, services would immediately disappear altogether.

There was also general agreement with the suggestion made by Barry Fox, renowned technology journlist, that a real world trial of 4G, possibly in the Oxfordshire area (containing the constituencies of Prime Minister David Cameron and Minister for Culture, Communications and Creative Industries, Ed Vaizey) would allow everyone to see exactly how many homes and devices would be affected by the introduction of 4G services, since however rigorous the testing, real world conditions are impossible to predict. One can imagine that the disappearance from the Freeview airwaves of a major live sports event – the Olympics 100m final perhaps – caused by a temporary 4G switch-on might be effective in bringing the issue to national attention.

In spite of their natural allegiance to the television industry, most eForum speakers recognised the importance of 4G services in the UK’s overall information infrastructure, but there are clearly battles ahead when it comes to the fine details of which spectrum gets used for which services and who pays for disruption to established businesses caused by the introduction of new technologies.

The wider context of the debate centres on the relative importance of traditional television in the context of the continued expansion and influence of personal and mobile devices such as a smartphones and tablets as media consumption platforms. These issues were also addressed at the conference but with an inevitable bias towards traditional models, in the sense of both “big screen” and “free to access” as key components of what many (British and European) people still understand as “television”.

The key unknown in much of this discussion is whether the current sharp demographic variation in media device consumption patterns indicates a permanently altered landscape. In other words, will today’s young, small screen video viewers remain that way as they grow older or will they seize the opportunity to migrate to a large screen HDTV as soon as they form their own households in later life? Because the assumption of many “wireless” provider seems to be that “wireless broadband” is the only service many people will need in the future to consume whatever content (video, music, games) on their personal smart devices as well as larger screens. The US is already debating whether LTE broadcasting can provide a long term replacement for traditional over-the-air signals (see Ericsson IEEE paper). If such debates come to Europe then the DTT/4G arguments seem set to become even more complex.

David Mercer

Established IPTV and OTT vendors Viaccess and Orca Interactive have now merged their operations and will now be known as VO. This is presented as a structural change with no impact on employment in either firm. In the near term the branding will remind customers of the companies’ combined origins. Judging from discussions with management in Paris earlier this week, VO’s pronunciation itself remains to be determined: “Vee-Oh” appears to be the preferred option although we will see whether market forces push things in the direction of a more obvious if less melodious “Voh”.

Both Viaccess and Orca have been part of the France Telecom (Orange) group for some years, since Orca was acquired back in 2008. And therein lies one of the main problems the new company is trying to solve: it believes it is widely and less than accurately perceived as focusing on the interests of its parent company. In fact VO counts YouSee, Eutelsat, Canal+, Reliance and Boxer amongst its customers. The key objective of the merger is to help kickstart a further expansion of VO’s customer base, notably in the Americas, although it is also presented as offering existing clients the benefits of closer synergies between the two firms and a more complete solution to the content discovery and management needs of companies deploying IP (OTT or managed) TV services.

There is a perennial debate in the TV technology space about the relative merits of smaller (nimble, agile) versus larger (one-stop shop) vendors. VO readily admits that it now falls into the medium sized bracket, but seems particularly keen to stress the advantages it has against bigger competitors which, if anything, have become larger in recent times with the acquisitions of NDS by Cisco and Widevine by Google.

If a company’s success was determined simply by its relative size forecasting would be a simple business, but presumably also no new companies would ever succeed. VO’s creation will only be justified as successful, by France Telecom as well as the outside world, if the company grows. Demonstrations of VO’s multiscreen and hbbTV solutions suggest it has a package of products and services worth considering. As VO’s deputy CEO, Haggai Barel noted, Orca was demonstrating multiscreen on a Nokia smartphone ten years ago, and this pedigree has evolved into a set of multiscreen options which appear to tap into most of the possible needs of managed or OTT service providers.

What I would most like to see is further evolution in VO’s content discovery and intelligence technologies. As I have pointed out previously this remains one of the unresolved challenges and opportunities in the new TV era and the company that comes up with solutions which truly revolutionise the way viewers discover and enjoy television content will be creating new value.

David Mercer

Big news today as Cisco announces its intention to acquire NDS for $5bn. Both company boards have approved the deal which is expected to close during 2H 2012. NDS is currently owned by News Corp and Permira.

Cisco made headlines last year for most of the wrong reasons, including famously pulling out of most of its consumer-facing businesses such as the Flip camcorder. Acquiring NDS puts it firmly back on the acquisitions radar, and confirms what John Chambers told me during our analyst roundtable at the 2012 CES: “the consumer still remains a key element in Cisco’s strategy”. Cisco supports service providers who support consumers, and NDS fits nicely into that positioning. According to Chambers during the financial analyst call today, NDS’s strength in software is exactly what Cisco’s customers have been looking for.

NDS helped create the pay TV industry. Originally developed out of the News Corp organisation, its smart card technology was a critical element in the development of Sky in the UK, and from that base it expanded into many pay TV operators around the world. Along the way it expanded into interactive (now more fashionably known as smart TV middleware and many other components of the television technology chain. And while the company’s charismatic leader, Abe Peled, used to make great play of the longevity and importance of the smart card/set-top box model, his company nevertheless has been preparing the way for the OTT/connected TV era. The fact that News Corp is willing to sell NDS is another sign (after Sky recently announced its own independent OTT service) that media companies see their subscription businesses as less reliant on the television set-top box, instead moving towards a multi-device, software and network based model.

If anyone doubted Cisco’s seriousness about the consumer video space (rumours about the future of its Scientific Atlanta business regularly resurface), this acquisition confirms it still intends to play a critical role in television’s transformation over the coming years. Assuming that the transaction goes ahead and NDS can be successfully integrated, NDS’s operator relationships, R&D strength and technology visions should help Cisco’s service provider and media customers make better sense of the value chain disruptions which lie ahead.

David Mercer

Former President of the European Parliament Pat Cox closed this morning's keynote at Cable Congress 2012 in Brussels by alluding to Roman Emperor Seneca the Younger's warning: "if man does not know to what port he is sailing, no wind is favourable." He was speaking in reference to the never-ending travails of the European Union as it seeks to resolve its financial problems. But he might as well have been commenting on the state of the European cable industry.

Europe's cable TV subscriber base has been flat for many years, although it has had some success in growing TV ARPUs. According to this morning"s press conference at Cable Congress in Brussels the fastest growth is now in broadband data, at least in the German market, where cable broadband had a very slow start.

Manuel Cubero, COO of Kabel Deutschland, made a telling remark when he said that the German cable industry now thinks of broadband customers using OTT video services as its own video customers, and in that context the cable industry’s video or TV customer base is growing.

Cable has always been the original broadband pipe, with the potential to offer video, television, communications, data and advanced services like smart home, all using the same network access platform. But while this inherent multi-service capability has always been seen as a strength, has it also obscured the industry's direction? If cable operators are now happy to accept customers who only pay for data as though they were video customers, what business is cable in?

As our research has shown, cable TV is caught in a pincer movement between higher value, technology-leading satellite services, and free DTT. It’s understandable that cable operators want to emphasise broadband as their growth opportunity, but at the same time I have heard a lot today about video being central to their future. Messages do seem to be somewhat mixed.

During the next panel discussion Mike Fries of Liberty Global touched on the old question of whether cable operators are in the content business. He indicated that cable certainly intended to expand its presence in content. He made the interesting point that cable's primary competitor, in all markets including the US, is free-to-air. So as cable navigates stormy seas, if it is defined primarily in relation to its main competitor this suggests that cable's port can be described as simply getting people to pay for something, or possibly anything.

That conclusion is clearly unsatisfactory so I am on the lookout for further guidance on cable's strategy and direction over the next couple of days. In the worst case perhaps we will just conclude that the sea fog is so thick that we can't even see where we are going, never mind know where and when we are expected to arrive.

David Mercer

As we approach next week’s important Cable Congress event in Brussels, we went to our ConsumerMetrix survey of 2700 television households to see what European cable customers are saying about their television service in relation to cable’s major platform competitors, satellite and DTT. We are pleased to present the results of this analysis in a complimentary report to coincide with the Cable Congress, which is now available for download from the Strategy Analytics website.

Clearly broadband and other services are also on cable’s agenda, but in this report we’ve focused on television services. Unlike the US, where cable has long been established as the primary television access platform, its availability and customer base across Europe is much more of a patchwork quilt. For a number of historical and structural reasons, both satellite and terrestrial providers have established stronger relative positions in Europe than in the US.

Satellite’s advantages are clear to see from our survey. We asked customers whether their television provider gave them access to advanced services and features such as programme guide search, series recording, and live TV pause. In every case satellite customers were more likely to have access to these capabilities than cable customers. Often the margin is significant: 59% of satellite customers get HDTV channels, compared to 50% of cable; 53% have series recording on satellite services, and only 36% on cable.

 Remarkably perhaps, more satellite customers claim to get VOD from their satellite provider than cable customers: 44% v. 43%. Satellite clearly lacks the integrated pipe required for a true VOD service, although hybrid internet and push-VOD DVR services are available. Nevertheless, the fact that cable’s one big technical advantage has not been maximised demonstrates how much catching up the cable industry has ahead of it. Or is it just that cable customers don’t know what their cable provider offers?

While satellite leads in technology rollouts, digital terrestrial television has also had a major impact on Europe’s landscape. Not surprisingly, given that these are often free services, DTT lags behind both cable and satellite in feature availability and performance. But the flipside is that DTT is most highly rated on overall value for money, not surprisingly. In times of economic uncertainty the threat of customer defection to a lower cost option is very real.

This satellite/DTT pincer movement presents cable TV with a dilemma: should it concentrate on the innovation threat from satellite (and potentially other new entrants), or try to resist the allure of free digital terrestrial services now widely available across Europe? Can cable meet both challenges, and how can its broadband advantage be used to best effect?

I’m looking forward to getting further insight into these and other questions from the senior executives who will be speaking at Cable Congress. I’d also welcome any feedback on our survey findings and invitations to discuss industry issues and strategies during the event.

David Mercer

A common theme during last week’s excellent Future TV Ads conference in London was the battle between “platforms” (TV service providers) and broadcasters. Platforms such as Sky and Virgin gave upbeat assessments of the opportunities presented by IP technologies to improve the power and value of advertising. Broadcasters, on the other hand, were markedly more nervous about the impact on their own businesses.

Virgin Media is currently gung-ho about its TiVo boxes: 220,000 households (6% of Virgin’s TV customers) were using these devices by the end of October and we were assured that the number is already “much higher”. 79% of those households are accessing an average of 4.5 “apps” each week.

By deploying more advanced technologies such as TiVo, Virgin has been able to trial new advertising models, and claims that they have “all been highly successful”. While this somehow doesn’t quite ring true, Virgin believes it is in a good position to “create the next generation advertising marketplace” and furthermore that “apps will be a fundamental and significant part of the television advertising toolkit”.

Sky’s Jeremy ester (director, brand strategy) highlighted two key challenges for advanced advertising: ad serving technology, and measurement. Sky is helping to address the latter challenge by finally fulfilling the potential of its interactive set-top boxes to develop improved advertising research. The company already has 20,000 households in its SkyView customer panel, which have opted in to sharing set-top box-based information about viewing patterns. Sky plans to expand this panel towards “hundreds” of thousands of homes over the coming year or so, and in fact Tester suggested there was no reason why the base should not ultimately comprise millions of households. Sky’s strategy is leading towards the deployment of Sky’s AdSmart targeted advertising service on set-top boxes by spring 2013.

Another important piece of BSkyB’s strategy is SkyIQ, a subsidiary which evolved out of the acquisition of a division of Experian in 2010. SkyIQ supports advertisers with database and customer intelligence services, and, according to Tester, is offering advertising research which is “better than anything seen before”.

 Sky’s counterparts around the world may be curious how the company is managing data privacy issues, which can be notoriously stringent in many countries. Sky contacted its customers earlier in 2011 seeking permission to collect anonymous customer data, and claims that “very few” of its customer households did not give their consent. There seems to be a lesson that if data collection is presented as offering clear benefits, many customers do not see it as a problem.

In response to my question about social networking, which Tester had not mentioned during his presentation, he admitted that Sky is seeing a “huge impact on viewing behaviour” from social networking apps and services. I did sense a slightly defensive stance, since Tester was quick to reassure us that Sky “did not want to get left behind” and was developing its own social networking tools. It sounded as though that was a little bit more than Sky’s corporate communications team wanted to be publicised, so we can assume significant announcements in this space over the coming months.

The “battle” was certainly raging during my own panel at the end of day two. Decipher’s Nigel Walley stood up for broadcasters “vigorously”, let’s say, in the face of questioning about the supposed threat from Google, Facebook et al. I just hope Videonet, the conference organisers, have invested in a bleep machine before they edit the videos for online availability.

The bottom line, as GroupM’s Simon Thomas noted, is that advertising expenditure as a whole can not be expected to grow very much over the coming years. While there is a great deal of advertising experimentation, advertisers, like every business in tough economic times, have to quantify ROI before investing in new solutions. “If we can’t measure it, we don’t get paid by the advertiser.” And as ITV’s Eric Guillaume admitted, broadcasters are “really bad” at understanding customer data. As we’ve seen, that is a huge contrast to what’s going on at Sky, Virgin and the TV platforms in general, and explains why broadcasters have a great deal of catching up to do if they are to thrive in the new interactive television era.

David Mercer

Executives from Alcatel-Lucent (ALU) presented the company's latest technology roadmaps and innovations at its recent Technology Symposium in (and just outside) Paris. Stephen Carter, Chief Marketing, Strategy & Communications Officer, described the six key trends as ALU sees them:

• Wireless
• Cost Experience Transformation
• The Apps and Content Value Chain
• Cloud
• Critical Network Infrastructure
• Internet of Things

 None of these is a particularly new idea but they neatly sum up the key battlegrounds for ALU’s core customer base, the network service provider industry.

The continued evolution of wireless technologies is well documented, as global 4G rollouts will be the focus of attention for the next few years. But ALU has a key interest in the transformation of fixed line broadband as well, having played the leading role in establishing the dominant xDSL technologies over the past couple of decades. In spite of the global predominance of wireless access technologies, it may come as a surprise that fixed access still has a vital role to play, in mature markets at least.

For many years there has been much talk of fiber-to-the-home as the ultimate fixed broadband solution, but the relatively limited commercial deployments of such solutions (such as Verizon’s FioS) have been slow to emerge and, if anything, are showing signs of plateauing rather than becoming de facto alternatives. BT is the latest telco to stumble on its plans for FTTH (or FTTP – Premises – as it prefers to call it): installations during the trial phase are taking seven hours on average, against a target of four, and it is reported that a quarter of installations are taking as long as two days to complete.

There just doesn’t seem to be any obvious solution to the dreaded last mile challenge, which is less about developing ever more advanced communications technologies than about the need to invest in shovels and spades to dig up roads, pathways and gardens. The labour required for such “replacement” wires is pretty much fixed cost, unless anyone is suggesting an unlikely collapse in labour rates; and, as BT is demonstrating, you just never know what physical or organisational obstacles will lie in the way of new wire installations.

ALU thinks it has come up with a viable alternative to FTTH. As part of its High Leverage Network architecture, for which video services are seen as a major driver, it believes that the established copper access infrastructure can be upgraded to support speeds of up to 900Mbps. Key enabling technologies behind this transformation are vectoring (involving the removal of crosstalk), as well as quadruple bonding of copper pairs. Four pairs are not commonly available, but the technology would still provide bandwidth of nearly 400Mbps over two pairs over a distance of 400 metres.

ALU’s major challenge is to convince its service provider customers that any such next gen network investments will generate sufficient return from new service and application revenues. However positive a spin ALU puts on the potential for new data-sapping video services, our reading of service provider strategies is a high degree of caution about any significant net revenue growth impact from such services. As Telefonica noted recently during its investor day, incumbent telcos are projecting very modest revenue outlook (1-4%) for the foreseeable future, in spite of accounting for new service growth globally across wireless and wireline businesses. New network investment will continue but it is driven by competitive dynamics rather than the expectation of discovering a new pot of gold. Whether regulators decisions on next gen network policies, in Europe in particular, can have any impact on the established trendline seems doubtful at best.

David Mercer

Client Reading: Broadband Service Provider Performance Benchmarking: Europe Q4 2010