Is TV on track for the digital revolution?

One year after switchover started in Whitehaven, Cumbria, Steve Hemsley examines how the TV industry is gearing up for the 100% digital world.

On 14 November 2007, about 250 homes in the former Cumbrian fishing port of Whitehaven, located in the shadow of the Sellafield nuclear plant, lost their TV signal and their screens went blank.

Fortunately for those responsible for conveying the digital switchover message in the UK's first all-digital community in the Copeland area, the rest of the district's 25,000 households made sure their sets could receive a digital signal before the analogue service was switched off. They were now watching television on satellite, cable, broadband or Freeview.

The switchover process - which started one year ago this week, when the BBC Two signal was switched off in Whitehaven in the small hours of 17 October - is continuing TV region by TV region until 2012. Digital UK, the not-for-profit organisation implementing switchover, has a £200m communications budget to deliver information leaflets to every home, and to fund TV and radio advertising.

Multichannel penetration on primary television sets already stands at 88% (source: Ofcom). Consumers yet to make the switch, known unflatteringly as refuseniks, insist television is not an important part of their lives. The hardest people to convince have been the elderly, the poor and those without children.

Freeview has helped to convert some older people, thanks to its cheaper entry costs, while Sky remains confident it can win the battle for households with children. Sky is busy marketing to homes in Borders, the next TV region to switch from 6 November, and it has identified Sky + as key to attracting those people worried about having to upgrade their analogue VCRs.

The waters were muddied in May by the arrival of Freesat, the free-to-air digital satellite service owned jointly by the BBC and ITV. The service includes 130 digital TV and radio stations and carries HD programming.

For broadcasters and media agencies, the main challenge has been anticipating the new broadcast landscape and then planning investment strategies accordingly.

Julian Cooper, associate director of broadcast at MediaVest, says clients are aware switchover is happening, but remain nervous about how the media market will eventually evolve. "Like us, they won't actually know how the switch will alter the shape of the industry until it has been completed, but as switchover will happen on a gradual, regional scale, we should be able to assess the final outcome as it spreads," he says.

Chris Locke, UK group trading director at Starcom, has been telling clients to expect total viewing to decline as households reduce the number of television sets they own. He also expects an increase in the amount of viewing on computers, particularly among younger people.

The issue around second sets is also a concern for Richard Oliver, head of broadcast at Universal McCann. "There is a potential time bomb ticking away and the media industry must be ready for a shake-up in terms of viewing patterns," he says.

Consumer preferences

According to Barb, 18% of adults have watched television via the internet, and this figure rises to 28% among 15 to 24-year-olds. The use of internet TV viewing is small, at less than 1% relative to viewing on standard TV sets, but agencies expect this to increase significantly as digital switchover progresses.

Simon Bevan, head of broadcast at Vizeum, says: "Digital switchover has made us think about how commercial models are changing, because viewers will continue to consume content in different ways. There is a generation of viewers that has grown up with digital, but the traditional terrestrial channels with their big brands are determined to survive and do well in this evolving environment."

Indeed, ITV's commercial sales director, Gary Digby, says advertisers will demand more "event" television to reach mass audiences in an increasingly fragmented TV market.

"Most digital channels don't have event TV, such as Coronation Street, X Factor, Champions League or Big Brother, which viewers talk to each other about the next day," he says. "Much digital TV is 'me-too television' with no point of difference and the brands with the big money to spend still want to reach mass audiences."

Channel 4 should also hold its own, despite facing a £100m-a-year funding gap by the time digital switchover is completed in 2012, which will hamper its public service broadcasting obligations. Mike Parker, head of strategic sales at Channel 4, says: "Programming and branding are two bigdifferentiators, and we have well-branded, targeted channels such as E4 that we will continue to market well."

Five, which will finally be available to 100% of the population, up from 96% currently, will move to a level playing field with the other terrestrial broadcasters. In anticipation, Five revamped its brand in September with the strapline "We are Five" - the first major change since the channel rebranded as Five in 2002.

Julia Jordan, UKTV's executive director of business and operations, is pleased media agencies are beginning to assess television differently. Jordan believes switchover provides the perfect opportunity to revisit the terminology used when agencies and clients differentiate between terrestrial (traditionally associated with high-value audiences) and multichannel (conventionally considered low value).

She says: "With digital switchover, there should be a root and branch review of TV advertising to demonstrate the value of the medium in a digital age, and the contribution different channels are bringing to audiences and to advertisers."

Jordan wants channels such as Dave to be valued as highly as ITV2 in the all-digital world. UKTV launched three channel brands on 7 October - Watch (previously UKTV Gold+1), Gold (relaunched as a dedicated comedy channel) and Alibi (formerly UKTV Drama). UKTV has committed to commissioning 800 hours of its own content in a bid to change public - and some advertisers' - perceptions.

Jordan is also calling on Ofcom to use digital switchover to reignite its plans for a full review of the television advertising market. This examination was first mooted in 2003, when the contract rights renewal remedy was put in place to protect advertisers and media buyers following the merger of Carlton and Granada.

"Ofcom is still reviewing CRR and is expected to publish a report in 2009, but it has yet to decide if this will be extended to a full review of the ad market, which we would like to see," she says. "There are many vested interests among media agencies in keeping the status quo in TV advertising, but this would not be healthy for the medium of television as digital switchover is implemented."

Jonny Webb, managing director of Virgin Media Television, agrees that broadcasters and media agencies must work together more closely to make the most of digital switchover. He says: "Multichannel will be more representative of the UK population once the process is complete and will allow us to deliver real spikes in the schedule for advertisers - switchover will help our strategy for Virgin 1, for example.

"However, there remains a big challenge around rights. If we are to find fluid and new business models, we must all throw our content rights into the pot so we can experiment. We must convince the US studios to work with us on this."

Webb adds that advertisers are also demanding easier navigation for viewers between so many digital channels. "Viewers must be able to actually find the great content," he says.

Webb cites the example of the work Virgin Media carried out with Carat on the Vauxhall sponsorship of America's Next Top Model on Freeview via Virgin 1 and Living. The strategy worked, says Webb, because consumers were drawn back to the programme after interacting with the Vauxhall brand across different media.

Freeview remains the most commonly accessed digital TV platform, viewed in 16.7 million UK homes. However, in preparation for the switchover and the battle for multichannel customers, Freeview has rebranded its Playback digital TV recorders as Freeview+, in order to compete with Sky+ and V+.

Ilse Howling, managing director of Freeview, confirms that a £4m TV advertising campaign for Freeview+ will air this autumn. "Consumer research tells us that Freeview has massive appeal among those people thinking about getting digital for the first time," she says. "They like the fact that they are not overwhelmed by channels and just get the most-watched channels. Freeview+ is a big message for us, as are the planned HD channels, which will be available by the end of next year."

Philip Rutnam, partner for spectrum policy at Ofcom, confirms there are well-developed plans to get HD onto Freeview, and that the open competitive process to find two other broadcasters to launch HD alongside the BBC will be completed within weeks. He says: "There is space on Freeview to start carrying HD services as switchover begins to unfold during 2009/10, first in the Granada region."

Ofcom has also been overseeing a strategic review to decide what will happen to the old analogue spectrum once it is turned off. The Digital Dividend, as it is known, could be made available for further HD channels or for new generations of mobile technology around wireless broadband.

Ofcom, which plans to hold a spectrum auction next year, estimates the UK economy could benefit from the freed-up spectrum by between £5bn and £10bn over a 20-year period. The body is looking at charging broadcasters for TV spectrum from 2014 - possibly £16m per year per multiplex, with each multiplex carrying eight to nine TV channels. A final decision will be made nearer 2014.

The regulator may also be asked to look into the phasing out of analogue radio (FM/AM) broadcasts, although there are no imminent plans to do so. For now, more people are listening to digital radio stations through their TV sets: 36% of people tune into radio via their TV, compared to 22% who listen online (source: Ofcom).

Like good boy scouts, the media industry is well prepared for digital switchover and is not expecting any nasty surprises. However, ensuring the industry makes the most of such a significant shift in how millions of UK viewers consume television is another matter.

88 - The % take-up of multichannel TV on main sets in UK households

16.7m - The total number of households with digital terrestrial television (Freeview)

9.8m - The number of households watching digital satellite television (8.9 million BSkyB subscribers, plus 900,000 Freesat homes)

3.5m - The number of households subscribing to digital cable television (Virgin Media) Source: Digital UK/Ofcom

£200m - The cost of Digital UK's seven-year communications programme (Digital UK's Switchover Help Scheme costs £600m)

£500m - The amount being spent by broadcasters to upgrade 1,150 TV transmitters across the UK Source: Digital UK/Ofcom


ANDY ZONFRILLO, investment director, Mindshare
"The impact on the price of TV will be that costs will remain static or fall over the next few years, so advertisers will get more for their money. Advertisers will see a continued decline in those programmes that offer significant audiences. It is OK to say you can pinpoint audiences, but fragmentation is a worry for many clients, particularly fast moving consumer goods or youth brands, which want to reach the majority of the population quickly. Advertising on TV will not be as straightforward."

TESS ALPS, chief executive, Thinkbox
"The channel repertoire available to advertisers will increase and terrestrial broadcasters will see a dip in share versus their multichannel counterparts.

Everyone will have the chance to press the red button and, with a wider selection of more closely targeted channels, the entry point to TV advertising will be lower. The mass audiences will still be there, but advertisers will have to buy more spots.

Think of it like poster advertising - the population does not stand in front of just one poster. Advertisers will also have more opportunity to advertise through TV on-demand and to bring consumers closer to the brand with interactive TV."

MIKE PARKER, head of strategic sales, Channel 4
"Rather than referring to more fragmentation of TV, I prefer the term segmentation, because broadcasters can offer media agencies more targeted audiences. We have already moved away from mass audiences and TV is mirroring what has happened in other media such as online, which is the ultimate example of a medium where diverse communities can be accessed. Digital television in every home means tighter targeting and less wastage for advertisers. Advertisers still want to reach younger, upmarket consumers and it is up to us to deliver that."

DAVID SCOTT, chief executive, Digital UK
"Advertisers have to get to grips with the fact that the days when there were one or two big commercial channels have gone. Now it is all about using targeted channels for particular consumer groups. There is less audience wastage, but you can still reach every viewer. From the broadcaster's point of view, there are great opportunities to boost advertising, and to increase earnings from subscription and transactional revenues. This is all good news for the TV advertising market."

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