UK Digital TV Update
The UK regulator, OFCOM, publishes a quarterly report outlining the state of UK TV market and progress in digitalisation ahead of analogue TV close-down in the Digital Switch Over (DSO) which is due to be completed in 2012.
Some Important Data Points: Primary Household TV Sets
Satellite is the primary method of delivering TV onto the primary screen in the home (42% Satellite, 38% Digital Terrestrial TV, 11% Cable and 6% Analogue). We previously assumed that as DSO happened the decline in analogue homes would have moved to Digital Terrestrial TV (DTT). It appears that this hasn’t happened and instead many have switched to Satellite. It is worth noting that in the UK, Satellite has two main platforms: FreeSat - 2m homes; and the BskyB payTV service (9.3m). A majority of UK homes (52.25%) take a payTV service.
We are intrigued by the growth in Freesat homes. There are a lot of HD channels on FreeSat compared to DTT which may account for the platform’s growth. Integrated TVs (idTV) which have digital tuners inbuilt nowadays have satellite tuners as well as DTT, so the incremental cost for Freesat viewing is limited. We believe that more and more people prefer the capacity and quality of Freesat - and more importantly are becoming aware of this as penetration increases amongst friends and family.
Secondary TV Sets
DTT dominates on other TV sets with a lot of secondary sets still to convert from analogue (8.5m - 24%). Of the 26.4m secondary sets converted - approximately 20.5m are on DTT. With only a limited time left before DSO, we suspect that this secondary set issue isn’t as bad as the survey data shows. A lot of people will have DTT-capable TV’s but just watch analogue TV on them.
If BSkyB or Virgin Media (the UK Cable company) ever manage to develop reasonable “video distribution round the home” solutions, there is a lot of low-hanging fruit in platform penetration. The question is of course whether people will pay for it. The recently announced SkyGo strategy (for PCs, tablets, phones) implies that BSkyB are thinking of allowing secondary screens to access their content for no incremental cost. This makes their multiroom £10/month pricing look a little strange. BSkyb with their 2.2m multiroom subscribers have approximately a £220m/annum revenue stream. The following chart shows the scale of the opportunity: BSkyB homes have DTT use on 6.2m sets and VMED have 2.6m.
Other payTV platforms
Other payTV platforms are still languishing. 0.3m DTT (TopUpTV) and 0.5m IPTV (mainly BTvision). These platforms lack scale and surely will be consolidated around the time of YouView. Youview is the next generation set-top box which combines both payTV and DTT services, see here for an analysis of the progress.
DTT Equipment Sales
In Q1 there were 3.4m DTT equipment sales (inc. STBs, PVRs and IDTVs) compared to 3.6m a year ago. The decline is mainly from stand-alone STBs.
We believe this is a worrying trend for DTT as the market size doesn’t allow for UK variants of standard European technology. Hence Sony have publically said that they will not support YouView. Technicolour and Cisco have also recently said that they will not building YouView boxes.
Most of the equipment volume is coming from the sale of idTVs. These days you cannot buy a TV in the UK without an integrated DTT tuner and therefore a significant percentage of these volumes may be going into BSkyB and Virgin Media homes.
In summary, there is no evidence that DSO is harming either BSkyB or Virgin Media. In fact probably the corollary is true, DSO is creating opportunities for the payTV operators. We expect to see a further wave of innovation in both platforms functionality and pricing in 2012 when YouView is launched. But, we cannot see anything in the data which provides a crumb of hope for the YouView success.
Please note most OFCOM data is survey based and therefore subject to 1-2% margin of error ( +/-500k homes).
Source: http://stakeholders.ofcom.org.uk/market-data-research/tv-research/dtv/dtv-site/.
