Digital television: the failures of government

Unlike most people involved in the debate over digital television – those who are paid to promote it – I have actually been paid to attack it. For over 18 months I got up in the morning, contacted my allies, spies, lobbyists and consultants, launched broadsides, wrote letters to the Prime Minister, and went to bed in the evening contented that, on a good day, I had thwarted the dirigistes digitistes.

That was in the mid-1990s. I was with a company which wanted to launch Channel Five, as an analogue channel. We were fighting Michael Heseltine – then Deputy Prime Minister of the Conservative government – who wanted to use the same frequencies for digital television. (At one point, Heseltine tried to persuade us that we should transmit Channel Five by satellite; but that’s another story.)

The variables involved in digital television – spectrum planning, set-top boxes, business models and programme scheduling – make launching satellites look easy by comparison. But this did not stop many companies hatching ambitious plans for the digital future. The BBC was the most confident, even then, producing multi-coloured programme schedules of astounding inventiveness (and I would like to thank the BBC mole who kept me up-to-date).

There were probably only half a dozen people in the UK who understood it all. Nobody in the Department of Trade and Industry (DTI) had the faintest idea. Yet the DTI was adamant that Britain had to be ‘first’ (why?) in the ‘race’ (what race?) to ‘digital’ (what is that, precisely?). Sound familiar?

Track forward to Seoul, Korea, in November 2001. To celebrate its new digital terrestrial service, Korea invites me to describe the wonders of digital television in Europe. I tell my hosts that I am a sceptic. They bravely say come anyway; and I say that Europe has its policy in a pickle.

Here’s why.

What’s it all about?

There is deep confusion about what ‘digital television’ actually is. The technical parameters are agreed. But the industry often mixes a digital signal with a digital programme service; and therefore misunderstands the relationship between digital and high-definition, broadband, enhanced and interactive services. Most of these, after all, can be analogue. The public is also confused. A recent survey revealed they believe ‘digital’ means ‘multi-channel’.

Digital has become a ‘halo’ word, like convergence and interactive; motherhood and apple pie.

Back in the 1990s, Michael Heseltine praised digital television as the televisual equivalent of a compact disc. I pointed out that he played his CDs through analogue loudspeakers, that all digital television sets have analogue loudspeakers and that all humans, even Deputy Prime Ministers, have analogue ears and would always hear analogue sounds. That was the end of that particular meeting.

Driven by terrestrial

Governments have little control over most digital activity (digital production, digits inside computers, digits travelling along the Internet). But they can influence terrestrial broadcasting. Unsurprisingly, they focus on what it can control.

The British government’s strategy towards terrestrial transmission has been driven by what I call its modernising agenda and spectrum re-sale.

The modernising agenda

Then and now, the government in the UK sees digital as a key part of the modern state (so do the Koreans, rather more successfully). It talks about broadband – although broadband can be either analogue or digital. It talks about ‘international competition’. But digital has little effect on Britain’s international competitiveness. Rather the opposite.

The move to digital has required the television industry to spend a large amount of management time and financial resources on a business with uncertain financial benefits. Was it sensible for the government to encourage ITV (Independent Television, a consortium of companies including the two biggest independent broadcasters, Granada and Carlton) to spend nearly £700 million on ITV Digital? In the United States, the networks stick to their knitting – sensible guys. In the UK, ITV does not play to its strengths; it plays to its hubris.

Making money from spectrum

The second factor in the government’s strategy is the supposed economics of terrestrial television.

By replacing wasteful analogue transmissions with efficient digital transmissions, the government anticipated a huge financial windfall. Its consultative paper spoke of ten to fifteen billion pounds, likened to the windfall received from North Sea oil in the 1980s. Although high, these sums are in line with Britain’s 3G auction, when five companies paid the Treasury £22 billion. However, the terrible state of most telecom companies a year later suggests these fees are not sustainable. The spectrum windfall might be quite small.

Two stages: interim and full

The introduction of digital terrestrial television (DTT) has two phases. There is the ‘interim’ phase, during which some transmitters will start digital services. Then, when enough households can receive these signals, we will move to the ‘full’ phase when the analogue services are switched off, and the spectrum is used to provide complete digital coverage.

The rational approach is to decide: (i) the structure of the ‘full’ phase, then (ii) how to handle the ‘interim’ phase. In other words, the government’s proper role is to first clarify the objective – the best use of digital spectrum in a world of competing delivery systems – and then to work out how to reach the objective. Unfortunately, the British government and most other European governments have done the opposite: try to encourage digital television without thinking too hard about the long-term strategy.

Switch-over (from analogue to digital)

The strategy of the New Labour government, which came to office in 1997, can be summed up in a few words: encourage a few to switch over and the rest will follow. But while many viewers have switched over to digital services, many have not.

Consumers fall into three groups. One large group wants to watch live football or movies, and so subscribes to digital. Another large group doesn’t want more programming (and certainly not if it has to pay for it) and therefore doesn’t want digital at all. The third, and much smaller, group wants a few extra semi-free channels and puts up with digital as the price of watching them.

There is little in the current or planned services that is likely to move the total of these groups close to a hundred per cent. The new digital-only basic channels are not very attractive. So digital’s offer of more basic channels has only a marginal impact. It will not allow the government to switch off the analogue transmissions, which is necessary in order to provide universal digital coverage and re-sell the spectrum.

Switch-off (analogue transmission)

The government has said it will not switch off the analogue transmissions until digital is available, accessible and affordable. They say that they expect these three tests to be satisfied between 2006–10. Industry is highly sceptical, and rightly so. All research shows that there is a large rump of people who simply don’t want digital television, and certainly don’t want to pay extra for it.

The Consumers Association said in October 2001 that two-thirds of consumers don’t want digital at all. A very large proportion of elderly people are content with the existing services. Turning off the analogue network and depriving these people of television would be political suicide.

It is now clear to almost everyone except Tessa Jowell, the government minister charged with presiding over the switch-off, that the promotion of digital services (the switch-over strategy) will not be sufficient to allow the government to close down the analogue services (the switch-off strategy). The programmes are not interesting enough to enough people. The costs are too high. Consumer inertia is too great.

Digital sets

The success of any strategy depends on the functionality, price and take-up of receiving equipment.

There is a lot of interest in cheap set-top boxes (STBs) costing around £50. Are they viable? They sound good, but boxes at that price will be quite basic. They may provide access to pictures and sound but have limited functionality. They may be incapable of accessing the pay-TV services that are digital’s main attraction.

Should the government subsidise a cheap box? If it wants to do so, it faces delicate questions of ownership. Anyone who has worked in the pay-TV business knows that pay-TV companies regard their STBs as highly competitive pieces of equipment. The government also faces difficulties in the timing of any announcement. It would have to give manufacturers sufficient lead time while not alerting potential customers too soon. Otherwise, everyone will say ‘I’ll wait and get for one free too’.

This summer, high street retailers report that most consumers still prefer to buy analogue sets. Those people who do want to splurge on a new TV set are looking closely at the smart new flat screens. These are expensive, but impress the neighbours even when turned off.

Competition policy

From the beginning, Britain’s strategy has been greatly affected by domestic and EU competition policy. This says that companies which abuse a dominant position should not be permitted to do so. A dominant position, by itself, is okay; but its abuse is definitely not.

Britain’s own rules on media ownership seek to prevent any single company from building up too great a share of the newspaper, television or radio.

Given a choice between building up a strong digital television industry and adhering to competition policy, Britain has always chosen the latter. The result is a level playing field with a lot of crippled players.

New content?

Does digital TV allow new kinds of content?

The government is enthused by convergence. Why? It is far from being a universal trend. There are good reasons why hardback books, paperbacks, newspapers and magazines have stayed resolutely separate: the public likes it that way, and it is economically more profitable.

Back when we were fighting for Channel Five, the government talked excitedly about new digital content. Here, too, we were party poopers. Most of the television camera chain (recording/production/editing) is already digital, and is only transferred to analogue for transmission. The ability of producers to handle images digitally is unaffected by the nature of the final transmission link (except Internet protocol (IP)). The switch to digital transmission therefore has little impact on digital production.

The truth is that the main impact of digital is not directly on programme content but indirectly on the financial health and management vision of the companies involved. If they do well, they will commission more programme content and take more risks; otherwise, not.

On this measure in the UK, the BBC scores highest, Channel Four scores okay and everyone else, either by pandering to the government or through their own mistakes, scores very low indeed.

The result is unfair competition between the BBC and the rest. As a director of a privately-financed webcasting company, I know the problems of trying to compete with a BBC that is subsidised to sell services to the same third-party clients as do we. For the same reasons, Pearson, HarperCollins and others are complaining to Tessa Jowell about the on-line Digital Curriculum of the BBC.

The growth in the volume, attractiveness and profitability of digital content will depend much more upon how these commercial and political conflicts are resolved than on the technical benefits of digital coding or the specific programme content.