Future of DTT in Doubt

By Valerie Milano

The cable industry’s urgent embrace of digital technology and its aggressive deployment of services such as VOD and SVOD (subscription VOD) is causing some experts to question the global future of digital terrestrial television (DTT).

Overall, DTT has gotten off to a disappointing start worldwide, after launches in North America and Europe in November 1998. In Europe, satellite remains the primary mode of digital delivery, followed by cable and then terrestrial. Europe’s five major TV territories Ñ the U.K., France, Germany, Italy and Spain Ñ ended 2000 with more than 15.7 million digital pay-TV homes combined. Of those countries, the U.K. leads the pack thanks to the efforts of Sky, which has aggressively promoted digital via free set-top box giveaways. Their nearly seven million digital homes represent a 26 percent penetration and their year-to-year growth is an astonishing 129 percent. By comparison, at the end of 2001, Europe reportedly had less than 1.5 million DTT homes.

Spain’s only DTT operator, Quiero TV, is for sale after its investors (Auna, Planeta and Carlton TV) invested an additional $260 million to keep it afloat. Since its inception in 2000, Quiero TV has signed some 130,000 subscribers.

In Tokyo, Asahi National Broadcasting President, Michisada Hirose has urged the government to stick to the plan to launch terrestrial digital TV in 2003, despite a call by some in the industry to delay the new service due to the poor economic conditions. "Any delay would sour our enthusiasm," Hirose told reporters, referring to recent speculation that the launch of broadcasts in the three largest markets Ñ Tokyo, Osaka and Nagoya Ñ could be delayed because of larger-than-expected public costs.


In Canada, on the other hand, cable domination will set the digital TV tone. Last year, Canada approved the launch of 21 specialty digital cable channels, and there will be 262 digital licenses that will be available pending negotiations with cable and satellite companies. As of September Canada will have approximately two million digital capable households out of a total 10 million TV households. Like the U.S., Canada has a high cable penetration at 80 percent.

There is concern that terrestrial digital could fail as a delivery system because of the established strength of cable and satellite services and the issue will only become more contentious as the number of digital channels continues to grow, but some governments are already stepping up to the terrestrial plate. In July 2001, France’s broadcasting regulator, the Conseil Superieur de l’Audiovisuel, announced its promotion of terrestrial digital television, with 22 national commercial channels up for grabs. There will be a total of 33 digital channels, eight of which have been designated as public-service channels, with three reserved for regional and local channels. Hoping to give terrestrial a much-needed boost, France relaxed laws preventing any company from owning more than 49 percent of a national network. Under the new regulations, a company can own 100 percent of a network as long as it doesn’t have an average annual audience share of greater than 2.5 percent. And companies cannot bid for channels if more than 20 percent of their capital is held outside the European Union.

Some experts believe DTT will succeed only where broadcasters develop specific revenue streams from DTT broadcasts and by adapting their DTT business models to local market conditions. But even then, the proposition has been difficult, as seen with the financial difficulties of U.K.’s ITV Digital (formerly ONdigital), which has been forced to undergo restructuring in hopes of staying financially afloat. The restructuring will focus in part on deploying free-to-air set-top boxes. ITV is working with manufacturers, retailers and broadcasters to try to insure the success of the new boxes, which it hopes will add to its 1.3 million subscribers.

The company must also reduce costs, and to that end Carlton and Granada, who co-own the service, have indicated they will have no choice but to pull the plug on ITV Digital unless they are able to renegotiate more favorable financial terms with key content providers such as its $87 million contract with BSkyB, which supplies sports and movies. The moves come in the wake of the ad downturn which has been responsible for both Carlton and Granada suffering record losses. So far, the companies have poured $1.16 billion into the DTT business via ITV since it launched as ONdigital in 1998 and are $435 million from breaking even.