Friday, September 17, 2004

Daiwa EuroTelcoblog No. 77: Friday 17th September, 2004 - I want my free TV, or UK digital TV update for Q2

We knew that BSkyB's calendar Q2 subscriber growth numbers were unimpressive, but today the more accurate picture emerges from the OFCOM digital TV market update for Q2. The growth in total free-to-view households was 13.7% sequentially in Q2, vs. 1.1% for Sky. There are now an estimated 4.4m Freeview receivers installed in UK homes (+12.6% over Q1 levels), and there has been a strong 32% sequential uptick in free-to-view digital satellite viewers (now 305,000 strong, some of whom are former Sky subs who receive only free channels). OFCOM also reports TV-over-DSL subs, which now number just over 9,000, up 4.7% in the quarter. Excluding analogue cable, which is in terminal ex-growth in the UK, Sky is the slowest-growing platform for pay TV in the market by a wide margin (even cable managed 2.5% sequential growth in digital subs).

The statistics highlight the growing fragmentation in the broadcasting market, which itself echoes some familiar developments in telecom - turgid growth on traditional platforms, relentless consumer search for value, and an apparent preference for free services as against platforms which can offer advanced video-on-demand and PVR functionality. The latter is bound to be a very vexing development for players attempting to make such services a differentiator in their product offerings. Earlier this year, OFCOM research found that PVR household penetration is only around 2% at present in the UK, though digital TV penetration overall grew by 2.4 percentage points in Q1, to 55.4%, and by far the most significant growth is coming from platforms where on-demand and PVR functionality are not really an issue.

Judging from statements by Sky CEO James Murdoch at the latest set of results, we can expect Sky to throw some interesting features and services at the market over the coming months (potentially including, he suggested, something along the conceptual lines of the mooted TiVo/Netflix service which has gotten so much media attention), and no doubt the DSL brigade are coming in strength to the TV market. We also wonder what sort of service enhancements PCCW's UK wireless ISP Netvigator might have up its sleeves, given its parent's background in content. These are very exciting times in terms of service development, but we who watch the sector must be careful not to be swept away by a wave of technoeuphoria. The data published today seem to clearly show that the two key drivers of UK digital TV growth so far are simplicity and freedom of access.

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