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

 

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

During this week’s C-Scape analyst conference in London, Cisco’s Chairman and CEO, John Chambers, admitted that the company’s high end consumer telepresence initiative, Umi, is at least two years away from reaching significant volumes and “major acceptance”. He also indicated regret at the fact that the service had not been available before the 2010 selling season, and that it would be late 2011 before the company could be sure how well the business was performing.

As my colleague, Ben Piper, reported at the time of Umi’s launch, initial pricing levels were likely to be a major barrier to Umi’s adoption. 30% of people in our US survey of 2000 respondents indicated interest in the telepresence concept, but many of those same people are also keen not have any further monthly expenditures appearing on their bank statements. As much as the $599 initial purchase fee (or $1198 if you account for the need for a minimum of two systems for a conversation to take place), it is the $24.99 monthly fee which is likely to prove a strong deterrent to potential buyers.

 

 

Surprisingly, perhaps, John Chambers was prepared to accept that Umi is a longer, rather than near, term opportunity, however strategically important consumer telepresence remains to Cisco’s video network vision. This caution also explains to some degree why Cisco was prepared to take on the role of service provider in Umi’s early days, since it believes traditional service providers like telcos and cablecos need to be educated or persuaded on telepresence’s potential to drive ARPUs and help customer retention.

 

Cisco’s problem is that the window for Umi to capture a high end telepresence customer base may be fairly narrow. Connected TV-based solutions such as Skype are likely to increase their market penetration significantly over the next 24 months. Perhaps even more significant, we are likely to see growing home-based adoption of video conferencing on other non-PC platforms such as tablets and smartphones. These alternatives clearly will not offer the same big screen, high quality experience as Umi, but they could have both positive and negative impacts on Umi: on the one hand it will be argued that they “prove the concept” of mass market videoconferencing; on the other, they may eat into the early adopter market Umi is targeting, and, moreover, set the market price at much lower price points.

 

Service providers, in spite of early Umi partnerships such as Cisco/Verizon, will be watching closely for signs that alternative solutions are genuine competitors as this market emerges. They are unlikely to be blinded into making significant upfront investments by the temptation of additional ARPUs until further substantial evidence of Umi’s potential is demonstrated.

David Mercer

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

Two thirds of people who are thinking of buying an iPad in the next 12 months are expecting to pay less than the current lowest retail price, according to the latest research from our Tablet and Touchscreen Strategies service. 66% say they will pay less than $500 or €500, and half of those say they want to pay less than $300 or €300. We surveyed nearly 5000 consumers across the US and 4 major European markets. These findings won't concern Apple too much as there is enough momentum from early adopters to support growing iPad sales for the next few months. But they should serve as a clear warning that today's price points are unsustainable in the longer term. Already we are seeing a proliferation of (mostly Android-based) tablets arriving on retailers' shelves, often at iPad-undercutting prices. Staples is offering a 10" Viewsonic, Android 2.2 device at $400. I am awaiting delivery of a £150 7" Android 2.2 tablet from UK electronics specialist retailer Maplin. Clearly these devices will not match Apple in every respect; many observers doubt whether the latest versions of Google's OS are up to the job. But then the question is what "job" tablets are expected to carry out. iPad behaviour so far has been truly multifunctional, with a mix of games, browsing, video, communications, and the huge variety of apps which are impossible to categorise. I overheard one potential tablet buyer in Staples inquiring (of the Viewsonic device) whether it was good for reading books, and specifically whether it could do "things like Kindle". Unfortunately she happened to address the question'to a sales assistant who claimed to be "still training" on these devices and so couldn't commit to an answer. But the fact that customers are inquiring about specific capabilities suggests that all-round superiority may not necessarily be a requirement for tablet market entrants hoping to eat into Apple's dominant market position. That's not to say that device implementations shouldn't pass the bare minimum of usability requirements. There are still too many early Android devices floating around which really are not fit for purpose, even if they are practically being given away. Consumers want to pay $300 or $400 but they expect something that does at least a few things reasonably well. The sooner Android matures and its partners introduce devices to undercut the iPad, the better for the tablet market as a whole. Client Reading: Apple's iPad: Users, Buying Intentions and Price Expectations