The new mass market...
DIGITAL TV AND NEW MASS MARKETS
By Geoff Nairn
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11/05/97
Financial Times
Surveys
Page 13
Copyright Financial Times Limited 1997
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* By Geoffrey Nairn
The barriers are coming down
While observers claim that 'digital technology is the future of television,' consumer-demand may remain weak until suppliers are able to demonstrate compelling benefits
Digital television could hasten the long-promised convergence of the PC with the TV and create new mass markets for services such as Internet access, digital content and interactive programming. But for this digital dream to happen, the IT and media industries must demonstrate the benefits of digital television to a largely sceptical market.
Digital technology is dismantling the barriers that have traditionally kept IT companies, telephone operators and media companies apart. With the arrival of digital TV this process is likely to accelerate.
"Existing industry structures will be torn apart and new entrants will start up, resulting in additional complexity in the market," predicts a report on digital broadcasting from the UK-based consultancy, Ovum.
For a glimpse of how the new market dynamics may work, look no further than Spain, which has started two digital satellite TV services in 1997. The most recent, Via Digital, was launched in September and achieved over 128,000 subscribers in its first month -- a world record, according to the Via Digital consortium, which includes Telefonica, Spain's former telephone monopoly, the state-owned terrestrial broadcaster RTVE and Recoletos, a media group owned by Pearson, publisher of the Financial Times.
Digital technology allows broadcasters to provide a wider range of channels with better picture quality and CD-quality sound. Via Digital plans to offer more than 80 channels, including pay-per-view formats for films and sports -- a much greater choice than Spain's four national terrestrial broadcasters can offer.
However, more channels does not necessarily increase demand. In markets with many TV channels, the top four channels typically still take over 70 per cent of all viewing, according to the market research company Euromonitor.
The switch to digital TV is also expensive. Via Digital has spend Pta 4bn (GBP 16m) on technology for its broadcast centre in Madrid that beams digital content up to the Hispasat satellite. Viewers also have to buy new hardware -- either a set - top decoder or, in the future, a digital TV. Broadcasters are thus keen to use digital TV to offer higher value services that are not possible with traditional analogue broadcasting, such as pay-per-view programming and interactive services that could include Internet access, banking and ticket reservations.
"Digital technology is the future of television," says Pedro Perez, chairman of Via Digital. "It multiplies content and makes full interactivity possible, such that the TV will soon become the favourite medium for obtaining information, games, shopping and all types of services."
But these services are today largely non-existent and analysts say consumers are reluctant to spend money on unknown and unproven benefits. "Consumer-demand will remain weak until suppliers are able to demonstrate compelling benefits," says the Ovum report.
The consultancy estimates it will take at least five years for consumers to warm to the new technology. However, the market will then start to grow rapidly, and in ten years' time, few consumers will complain if analogue television is withdrawn.
Digital TV could bring a new phase of growth to the TV market but it also challenges the telephone and cable companies' plans to deliver multimedia over their networks. Broadcast digital TV allows Internet access providers to bypass bottlenecks on the terrestrial networks and beam bandwidth-hungry Web pages direct to consumers' PCs.
In September, Microsoft announced its WebTV subsidiary was developing a set - top box designed to download Web pages via broadcast digital TV.
Microsoft's digital TV strategy originally hinged on using cable networks to offer high-speed Internet access and so bypass the telephone companies. Its recent $1bn purchase of a stake in Comcast and last month's offer to buy TCI, the largest US cable company, seemed to confirm this view.
But countries such as the UK, Italy and Spain have under-developed cable networks -- and elsewhere, cable operators have scaled back plans to upgrade their analogue networks to handle digital content. Ovum predicts analogue cable operators in the UK will start losing subscribers from 2001, initially to digital cable but later and in greater number to digital TV.
Digital terrestrial broadcasting is due to start in the UK in late 1998 and will become a significant market force in 2001, Ovum believes. Whether digital TV arrives via cable, satellite or a terrestrial broadcast is ultimately irrelevant to most consumers and content providers.
Afar more important issue is the hardware that will be used to handle digital TV in consumers' homes. Broadcasters and consumer electronics firms promote digital TV as a better viewing experience with higher resolution images, improved audio and greater choice. They see high-definition digital TV sets ultimately replacing the set - top boxes today needed to received digital signals on an analogue TV.
By contrast, computer manufacturers wants the PC to deliver digital TV, claiming it is better suited to interactive applications and already has the processing power and memory needed to handle digital broadcasts.
Earlier this year, Compaq, Microsoft and Intel formed the DTV Team to promote this vision and develop the technologies needed to make it happen. The group faces several hurdles, however, not least convincing sceptical consumers to spend $2,000 on a device clearly not designed for watching TV.
"We don't believe most people will choose to watch TV on a small PC screen while sitting at a desk," admits Robert Stearns, Compaq's senior vice president for technology. "But there will be a strong relationship between the future TV appliance and PC technology."
The DTV Team envisages different types of DTV-based PC and TV appliances to address varying consumer needs and budgets, including low-cost devices with a similar price to an analogue TV. But the group's initial focus will be on including DTV capabilities in all new PCs and the first such products are due in late 1998. |
