Ofcom opens the door to more pay-TV on Freeview

As broadcasters prepare their bids for the latest Freeview slot, it appears the platform could now face a radically altered future. Ian Quinn reports.

Ofcom opens the door to more pay-TV on Freeview
Ofcom opens the door to more pay-TV on Freeview

News of the availability of a new Freeview slot from December 1 has had 17 UK broadcasters scrambling with bids, which have reportedly reached £10m.

The frontrunner appears to be RTL, which needs the slot for Five's long awaited first digital channel.

At £10m, the price is at least four times what operators would have had to fork out when Freeview came into existence three years ago and it is testament to its prolific growth as a free-to-view broadcasting platform.

But in an announcement which, according to one observer, "snuck in under the radar" last week, Ofcom has now opened the door for more pay TV services to be unleashed on Freeview.

Digital drive

True to its name, the platform's remit when it launched, amid the carnage left by the demise of ITV Digital, was strictly as a free-to-view proposition, with Ofcom and the Government concerning themselves with driving up digital take-up, before pulling the plug on the analogue signal.

Although pay TV operator, Top Up TV, has established a business that enables Freeview viewers to upgrade to receive some paid-for channels, the emphasis has remained firmly on Freeview's ability to provide digital services to customers, now numbering more than five million, for a simple, one-off charge.

Until now, paid-for channels have been specifically barred across a major part of the Freeview platform, which is divided into what are known as multiplexes.

Top UP TV operates on the SDN multiplex, which is owned by ITV, but three of Freeview's six multiplexes, two owned by National Grid Wireless (formerly Crown Castle) and one owned by the BBC, have licences that forbid paid-for services from getting channel slots.

Ofcom is now seeking to change those rules and allow all the multiplex "landlords", including the BBC, ITV, Channel 4 and NGW, the right to do deals with pay operators or, potentially, to launch their own paid-for upgrade channels.

In a consultation document covering the proposed regulatory changes, Ofcom states: "Ofcom's policy is to remove regulation where it is not necessary and to promote competition.

"It considers that finding the right balance between pay and free to air services on DTT can be left to the multiplex licencees."

The move is potentially a huge boost for Top Up TV, an independent company run by former Sky bosses David Chance and Ian West, which charges Freeview viewers to add channels, such as UK Gold, Boomerang, Cartoon Network, Discovery and Turner Classic Movies, to their EPGs.

Rough reception

Top Up TV encountered a rough reception from the BBC initially and then struggled to gain access to channels.

The service has been restricted to a fraction of the capacity on Freeview and suffered a serious blow earlier this year when C4 withdrew the highly prized E4 from its line up, when it decided to launch it free to view on the DTT platform.

That led some to question Top Up TV's future, but Ofcom's decision has given it an opportunity to make further inroads.

Ofcom's decision poses awkward questions over exactly what Freeview's remit is.

Freeview, under new general manager Ilse Howling, the former head of digital marketing for the BBC, is anxious not to lose its major selling point – access to digital TV for one relatively small payment.

The last thing Freeview needs is for potential consumers to be put off for fear of hidden charges.

But it's not just Top Up TV that is interested in the paid-for potential of Freeview. ITV, which spent £174m getting its hands on SDN, has admitted it is considering launching a pay TV operation in the future.

Although it is tied into long-term contracts with rival broadcasters until 2010, its SDN multiplex, even with existing technology restrictions, has the potential for at least 10 more ITV channels. As advertising revenue from ITV1 declines, pay TV is one of ITV's potential fallbacks.

Digital funding

Sky Networks chief Dawn Airey is one who has frequently questioned the long term viability of funding digital channels exclusively via advertising. Some believe it is only a matter of time before the next ITV spin-off, whether it be ITV5, ITV 6 or ITV18, is launched as a pay TV proposition, for fear that it can only sustain so many free to air channels.

Other commercial broadcasters, such as C4, might have similar thoughts, but will be mindful of the recent success of taking E4 free to view.

So, Top Up TV, which hijacked the original free-to-air proposition of Freeview by acquiring slots from Five, could end up seeing other broadcasters muscle in on its turf.

Yet Top Up TV says it will bid for any slots which become available on Freeview multiplexes allowed to carry paid-for services and has other technological and practical advantages up its sleeve.

Not least of these is the fact that of the 5.25 million Freeview homes, around 1.25 million of them are equipped with encryption technology, offering conditional access to paid-for TV content, for which Top Up has a long term deal with its technology providers.

It may have started out using the boxes of former ITV Digital customers, but in this Christmas period, with the BBC, C4 and ITV all set to heavily market Freeview on air, Top Up TV expects tens of thousands more viewers to have bought Freeview boxes and smart cards that plug straight into TV sets linked to its "closed platform."

It has been marketing its service on Freeview channels and in electronics stores and any broadcaster wishing to set up a rival pay TV operation on the back of Freeview would be faced with spending a fortune doing so.

West says: "You would be looking at something like £100m start up costs to do it," adding that it would mean broadcasters writing off almost a quarter of the audience who already have conditional access capability tied up via Top Up.

Bandwith problem

The company hopes this will persuade broadcasters like ITV to enter the paid-for market via its service, rather than start out on its own.

If Freeview is to see the arrival of a new stream of paid for services, there is also a problem of lack of bandwidth.

One of the reasons channel slots are now going at such a premium is simply the lack of space on the various multiplexes.

Of the commercial operators, NGW has the most spare capacity but, whether or not Ofcom extends its licence to take in paid-for channels, industry insiders say it has the potential to make room for many more channels if it invests in new technology to enable the compression of more channels onto the platform.

The BBC also has the potential to carry far more channels on Freeview than it currently offers, although as a significant player in Freeview, with free to view at the heart of its policy, it is likely to be less enthusiastic about welcoming new paid-for channels to the mix. Another Freeview consortium member, Sky, is hardly likely to be pressing for the expansion of paid-for services on its major rival platform.

Retention tool

Those who want Freeview to become the dominant digital TV provider, which appears these days to include ITV, C4 and Five, will surely have in mind what happened to its predecessor, ITV Digital.

West says: "Where we think the paid-for top-up services succeed, is as a retention tool for Freeview. Customers who have the ability to upgrade to receive more services are less likely to migrate to Sky or cable.

"Once you go down the path of marketing it for the paid-for services on DTT, I think that's where you get into an ITV Digital situation."

Ofcom is due to make its final proposals on Freeview's paid-for future in the next six to eight weeks, by which time someone will have paid about £10m for one free to view channel alone.

But Freeview's continuing rise is by no means to be taken for granted, which the fragile coalition that runs it knows only too well.

The cable merger, Sky's move into the provision of so called "triple play services" and the BBC and ITV's joint satellite TV venture, Freesat, are all potentially major threats to Freeview. Another is the danger of Freeview launching too many channels. Some Freeview viewers appear not to like having to wade through hundreds of channels. To a certain type of viewer, less is sometimes more.

Three likely outcomes of Ofcom's proposals

? Broadcasters launch paid-for TV spin-offs

? Pay broadcasters have to decide to go in with Top Up TV or persuade upwards of 1.2 million homes to get new equipment

? Sky and BBC clash with other Freeview members about its future direction

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