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

 

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

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

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

Reuters is reporting that cable operators are working on a plan to allow customers to purchase channels on an individual basis, also known as à la carte. This represents a 180 degree change in strategy and position, from an industry that has long held that established advertising models preclude any departure from the 'tiered' channel system. 

Glad to see you're finally coming around, Cable.

Not that you had much choice. And not to be uncharitable, but golly, it feels good.

You see, our camp (those who have been citing the need for à la carte bundling for the past 4+ years) has been rather sparsely populated of late. In countless reports, presentations and one-on-one meetings with Cable executives over the years, we have pointed out that à la carte is not just a consumer preference, it is a Pay TV imperative. Meanwhile, through industry blowhards and paid quote-models, we have been told that it can't work, that it won't work.

Our response has always been that it has to work, if Pay TV is to survive.

And after years of dismissing it out of hand, of categorically rejecting any survey data or consumer insights contradicting their established talking points, Cable is finally listening, the wires and airwaves are filling up with the sounds of pundits finally changing their tunes.

"There is a growing recognition that the current model is broken," one epically overexposed talking head quipped yesterday.

How's that for groundbreaking insight?

US Pay Cable operators posted net subscriber losses for the 15^th consecutive quarter in Q2'11. For fourteen of those fifteen quarters, the industry has regularly pivoted on its explanation.

First, they said net losses were just a 'blip', an anomaly. When losses persisted in sequential quarters, the stagnant economy and high unemployment were to blame. When that no longer held water, the talking point morphed into a we didn't want you anyway argument, that those churning or dropping were low value customers. A report we just published completely discredits that explanation as well.

Fresh out explanations, and having bled 400,000 subscribers in Q2'11, Pay TV really has no choice.

For as long as I've been covering this space, I've cited survey after survey confirming a strong consumer preference for à la carte and indeed, a willingness to pay MORE for à la carte. Consumers feel ripped off, they want to feel that they are in the drivers' seat. They need choice or the illusion of choice.

And contrary to what some suggest, money is not the primary motivator for consumer churn, it's about perceived value. It's about control of content.

Indeed, our latest report, which draws on a recent survey of of 2,000 US households, further confirms this notion. It shows that 21% of American Pay TV subscribers would be willing to pay more than they currently do if it means they have some say in what channels they get.

Glad you've seen the light, Cable. What took you so long?

We don’t do this very often folks, but as a seasonal gift we have made our 2011 Digital Home Predictions report available to everyone, whether a Strategy Analytics client or not. You can download the full report here. A lot of the talk at the moment is about Google’s troubles with its TV offer: there will be little to see at CES after all, much to the annoyance of Google’s many partners no doubt. But this setback should not be seen as a a sign of general malaise in the connected TV industry: Apple has just reported that its TV solution is finally gaining some traction, and we expect continued progress from other key players in the rollout of internet TV to the big screen during 2011. We may even see Facebook moving into this space. Headline number of the year will be tablet revenues, which we predict will exceed netbooks. We also think Apple needs to revamp iTunes to take account of the connected device era, and Nintendo may have to take the plunge and launch the successor to the Wii. We’ll see further innovations in the TV control arena, with touchscreens, phone apps and motion control all featuring more widely. But 3DTV is likely to see only slow progress: sure, people will be buying 3D-enabled sets, but less than 20% will be watching 3D content on them. And one more stat to whet your appetite: more than one billion people worldwide will be using social networks for the first time during 2011. And since you are one of them, please go ahead and read the full report, and any comments and feedback are always appreciated. Best wishes for a peaceful holiday season. David Mercer Client Reading: Profiling the Connected Media Consumer - UK

At 4.30 yesterday afternoon I wished Anthony Rose well for 2011. He agree it was going to be an exciting time, as YouView moves into the launch phase, and gave no indication that within a few hours he would be stepping down from his high profile CTO role. Rose had just given another presentation on the progress of YouView, the broadband TV joint venture "spearheaded" by the BBC. As YouView's figurehead Rose, in a short time, had become a star attraction on the conference circuit, and I dare say a fair proportion of the packed audience (by no means just from the UK) at Informa's OTT TV World Forum were there primarily to listen to his latest update on the project's progress. In a one-to-one discussion after the panel, I had been asking Rose about the potential compatibility between the YouView system and hbbtv, the broadband TV standard being deployed in Germany and elsewhere in Europe. I'll bring more on this subject at another time, together with the views of hbbtv itself. During the Q&A one or two people noted the challenges of getting YouView to publish its guidance documents in a timely fashion. One questioner noted that he had learnt more about YouView in ten minutes of listening to Anthony than from reading hundreds of pages of documentation. Rose admitted that keeping the project on schedule, as well as meeting the information demands of multiple external stakeholders, had proved challenging. Today's news stories are suggesting that Rose was not considered capable of managing YouView as it moves towards the commercial deployment phase. He will stay on in "an advisory role", but this hardly smacks of a vote of confidence. Advice is one thing: the responsibility for taking decisions will clearly rest on new shoulders. YouView is inevitably putting a gloss on the development, which will come as a shock to many in the IPTV industry. Management turmoil is rarely a good thing, so if YouView is to meet its ambitious mid-2011 launch target it needs to rally the troops and have its new managers get the word out that they understand and can meet the challenges ahead, without losing the vision which Anthony brought to the project. Many YouView doubters remain; the battle with Sky and Virgin rumbles on, and a lot more water will flow under the bridge before the next phase in television's evolution becomes a commercial reality. Client Reading: Profiling the Connected Media Consumer - UK

As I prepare to chair a panel discussion on television advertising at this week’s Future TV Advertising conference, I thought I would dip into our consumer surveys to see what people are telling us about their attitudes towards advertising. For reference, our survey was based on a weighted sample of 2803 online respondents across France, Germany, Italy and the UK, and was fielded between July and September 2010. One of the issues often discussed at such conferences is the degree to which viewers enjoy advertising on television. Our survey found that only 7% of Europeans strongly agree that they “enjoy watching and listening to well produced and informative commercials on television”, and another 26% somewhat agree. But 23% strongly disagree that they enjoy watching commercials, and another 16% somewhat disagree. This gives a negative “balance” of -6% overall on the question of how much people say they enjoy watching TV ads; you are three times more likely to find someone who dislikes TV ads as someone who really enjoys them. The irony is that Europeans do appreciate that advertising plays an important role, even if they don’t like watching the ads. 51% somewhat or strongly agree with the statement that “advertising plays a useful role since it pays for the cost of providing entertainment”; only 31% disagree. There is even stronger agreement for the idea that all television should be “free” at the point of consumption: 65% of people somewhat or strongly agree with the statement “No one should have to pay for television; all programmes, including all sports and movies, should be available to everyone and supported by advertisements or public funding”. Only 24% disagreed with the idea that all television should be free. Not surprisingly (given that pay TV is most successful in the UK) the strongest support for this idea came from viewers in continental Europe, with 72% of French respondents in agreement. UK respondents are markedly different in their atttitudes towards free TV: 49% agree it should be free, but 32% disagree, giving a net balance of only 17%, compared to 58% in France. We found similar love-hate attitudes towards advertising in online television. People are very resistant to the idea that they could pay in order to avoid advertisements, but they also don’t like the fact that they have to watch adverts before an online TV show starts, and they think there are too many short adverts in online video content. So the challenge for advertisers appears to be the same as it ever was: getting a message across and engaging with viewers who are generally resistant to commercially motivated communications. Whether technology and innovation can help ease that process over the years ahead remains to be seen. Client Reading: Global Advertising Market Forecast