Europe's Digital Revolution

Broadcasting Regulation, the EU and the Nation State

David Levy

• Publisher: Routledge
• Year: 2003
• Print ISBN:
  9780415242486
• eBook ISBN:
  9781134547081
• Topic: Politics & International Relations
• Subtopic: Law Theory & Practice
• Index: Politics & International Relations

Europe's Digital Revolution assesses the impact of digital broadcasting on regulatory practices in Europe. The current roles and responsibilities of nation states and the EU will have to respond to rapid technological and market developments. Levy considers how these responsibilities are likely to be divided in the future, and which are the emerging issues and problems.

Part I: The impact of convergence

1: Converging technologies, changing markets

The European media industry is in a period of change. What were previously national markets are becoming international in nature. Single sector media companies are merging into multi sector conglomerates. The industry is becoming more competitive, as companies from the IT and telecommunications markets, and new media specialists, enter the fray.

(McGarvey 1997:1)

The fast rate of technological change characterising the communications industry, the rapid emergence of new services and new market opportunities, and in particular the convergence between broadcasting and telecommunications, is continuously calling for new policy initiatives.

(OECD, 1997c: 19)

Introduction

Analogue broadcasting was characterised by limited channel choice, the need for the viewer to fit in with the schedulers, and a clear understanding that the television was simply a device for watching broadcast programmes. Digitalisation will create the possibility of hundreds of channels, convert the television set into a multipurpose/multimedia terminal, and allow viewers to become their own schedulers, watching programmes when they want and, in time, even interacting with the programmes themselves. Two forces are driving broadcasters and other media companies to invest in digital technology and new programme rights. The first is the belief that viewers can be persuaded to pay much more for television: through increased channel choice, charging for programmes currently viewed freeto-air, and using live sport, first release films and ‘adult’ programming to drive the take-up of pay-TV. Second is the conviction that the television, as the most ubiquitous household consumer device, will become the conduit through which an ever increasing variety of information will be conveyed and transactions conducted. No one can be certain about the degree to which these predictions will be realised. Indeed, one of the greatest commercial risks within the current enthusiasm for digital technology is that company strategies will be driven by a technological push rather than a consumer pull. As with most new technologies the uncertainties about the true extent of consumer demand are even greater than those surrounding the technology itself. Most observers agree, however, that in time the technological and commercial possibilities of digital television will transform the broadcasting markets of Europe’s major countries. This chapter looks first at the technological bases of the ‘digital revolution’ before moving on to examine some of the ways in which that technology seems likely to be applied in the market.

A technological revolution

At its most basic, digital technology involves converting sound and pictures into binary digits—a series of ones and noughts—rather than the variations in amplitude and frequency that carry the information in analogue broadcasting. Once audio-visual material is created and transmitted digitally it can benefit from the vast increases in computing, processing and storage power that are currently taking place. Moore’s law suggests a doubling of computer power for the same cost every eighteen months and a doubling of computer storage capacity every twelve months.¹ The speed and capacity of transmission networks is now beginning to increase at a similar rate, through the creation of new digital satellite and cable networks, through the upgrading of existing telecoms networks, and perhaps most dramatically, with the application of new technologies such as ADSL (Asymetric Digital Subscriber Loop) that allow fast transmission of data and video over existing telephone lines. Digital television combines a common digital coding system and this increased processing power with three other key technological changes: first digital compression; second technological and commercial convergence between hitherto discrete technologies and sectors; and third the spread of the conditional access technologies which are necessary both for the success of pay television and for the growth of new TV-based transactional services.

Compression and the end of spectrum scarcity

Digital compression technologies—which currently allow up to ten digital channels to be squeezed into the space previously occupied by one analogue channel—are reducing the impact of spectrum scarcity in limiting the number of broadcast TV channels. There will shortly be enough capacity for 500 digital satellite channels to be broadcast to the UK, digitalisation of the cable system will make space for up to 1,000 cable channels, and nearly thirty channels are initially available on the six multiplexes (or frequency blocks) that the UK Government has released for digital terrestrial television.² Continued improvements in compression technologies, and the eventual release of the spectrum when analogue satellite and (in the very long term) terrestrial transmissions are switched off, will mean that the number of available channels will be much higher. Conventional broadcast channels and their relatively high budget programmes are likely to dominate viewers’ preferences for some time to come, but much of the additional capacity will be put to new uses.³ New ‘narrowcast’ channels, targeting small communities of interest, or offering specialist services—such as rolling weather, financial or news services—will develop. The largest number of channels, however, are likely to be used for pay services—ranging from the simultaneous transmission of all the first division football matches being played on a Saturday afternoon, to a near video-on-demand service (NVOD) offering perhaps the top ten films, with each of them starting at, say, fifteen-minute intervals, throughout the evening.⁴ The rush to acquire content for these new digital outlets has already been reflected in dramatically increased prices for key film and sports rights.

Convergence

Technological convergence is made possible by a common digital coding system, compression and increased transmission capacity. It has been described as a multi-faceted phenomenon covering the ‘convergence of the content of media or media forms, convergence of delivery channels and convergence of customer interfaces’ such as the telephone, the computer and the TV (Prosser et al. 1996:3). One study conducted for the European Commission portrays convergence as the coming together of:

• the ‘logical’ convergence of physical information distribution infrastructures (such as broadcast television and telecommunications) to carry similar sorts of information at increasingly lower costs;

• the interactive information storage and processing capabilities of the computer world;

• the ubiquity and ease of use of consumer electronics; and

• content from the audio-visual and publishing worlds.

(KPMG 1996 vol. 2:87)

Convergence could potentially have a dramatic impact on consumers as transmission systems to the home, and domestic electronic equipment such as the telephone, the computer and the TV, begin to operate interchangeably. UK cable operators already provide telephony. Digital satellite and terrestrial transmission systems transmit data and graphics alongside TV programmes. Increasingly emails, web pages and audio and video (initially in poor quality) will be accessed on the Internet via satellite and cable more often and much more rapidly than through current telephone systems. Convergence will also be evident through the development of add-on units or set-top boxes allowing viewers to see TV programmes on their PC or use their TV as an Internet terminal. There will no doubt be some integrated PC/TVs but they will be more common in offices than in the home, since consumers wanting TV entertainment will continue to prefer a larger size screen in the living room rather than the desktop PC approach. Within five to seven years widescreen digital televisions will include large computer hard-disk drives capable of storing hundreds of hours of TV programmes.

Convergence could also change the structure of the communications market. Past market structures were defined by the method of delivery. They will begin to merge and new distribution methods will

allow the creation of new products and services which may or may not be close substitutes for established ones. CDs replace vinyl records; online news services replace…press cuttings services; and video-on-demand (or near video-on-demand), once introduced, may replace video rental through video rental shops.

(Hoehn et al. 1997:4)

The key question for those trying to regulate the information industries (a question to which we will return in Chapter 8) is the extent to which the impact of convergence will undermine the specificity of the broadcasting, publishing and telecommunications sectors, and whether that will demand a radical re-evaluation of existing regulatory categories and intentions.

Conditional access

Increasingly common and ever more sophisticated conditional access technologies will be another key feature of digital broadcasting. Conditional access operates like an electronic turnstile. Through encrypting programmes on transmission and their decryption via a set-top box in the customer’s household, only those viewers who have paid their subscription can view a pay TV service (Cruickshank 1997). Every household using digital TV will be equipped with a conditional access system with far more computer memory and ‘intelligence’ than its analogue counterpart, together with a ‘return path’ which will allow the consumer to communicate with the broadcaster or service provider, to order subscription or pay per view (PPV) programmes from their remote control, and access a range of other transactional services through the TV set. As more and more transactions are conducted via the TV set, so the TV will combine the roles of an extremely powerful marketing tool and a department store. Conditional access systems will operate as the gateway through which all these programmes and services must pass.

Faced with a proliferation of channels and services, viewers will become increasingly dependent on complex navigation systems or electronic programme guides (EPGs), incorporated into the conditional access systems, to guide them around the programmes and services that are available. These EPGs will become marketing tools in their own right, capable of influencing the ways in which consumers choose their programmes and services, according to the prominence, attractiveness or ease with which different options are presented. The ability that they will create for viewers to seek out material by programme category or to construct their own schedules and news bulletins could change the way that TV is used. Views differ on whether this combination of increased numbers of channels and sophisticated EPGs will lead to the Internet model, where channel identities disappear and relatively crude search engines supply a comprehensive listing of what is available, or whether instead the threat of information overload will lead viewers to become more dependent on their perception that quality is guaranteed either by a channel or a brand (Cruickshank 1997, Graham 1997a). What is clear, however, is that, in the new transactional world of television, there will be far greater opportunities to influence the choices of viewers and consumers and to gather information about customers’ viewing and purchasing patterns. Important issues of privacy and data protection will be raised as the set-top box in the home supercedes the supermarket loyalty card as the key source of customer information.

New digital services and a changing market

The move towards greater charging and interactivity has the potential to change the way in which television is consumed, as well as the structure of the market and the regulatory issues raised by television. Technology will facilitate this transformation but it will be the commercial opportunities for pay television and the provision of a range of TV-based services, that will determine the pace of the development of digital television. For commercial TV companies, digital broadcasting offers the tantalising prospect of closing the current gap between the two-thirds of leisure time that the average British consumer spends watching television (or listening to radio) as opposed to the mere 11 per cent of their leisure spending which is devoted to TV and videos (Morgan 1998a:28–9). Much of the investment currently being made in digital technology; in acquiring new programme rights, and in cross-media mergers is based on the hope that viewers will pay more for television programmes and that an increased number of transactions will be conducted through the television, as well as the fear that companies which don’t move fast may be excluded forever from a potentially very profitable market.

Pay TV

Pay television—primarily subscription and PPV (pay per view) sport and films—will dominate the development of digital TV. The high returns produced by pay TV companies such as Canal Plus and BSkyB from their analogue operations have spurred on others to emulate their success. Pay TV revenues already represented almost 50 per cent of those of the private TV sector in Western Europe in 1996 (Brown 1997:14). UK subscription television revenues which accounted for 20 per cent of all industry funding in 1995 are expected to rise three or even fourfold in the decade to 2005, to a point where they represent between a third and a half of UK audio-visual industry income (BBC 1996:23).

The development of UK analogue pay TV has been heavily dependent on BSkyB’s exclusive live rights to Premier League and other key football rights. Rupert Murdoch has, with customary clarity, declared his intention to use sport as ‘a battering ram’ for News Corporation’s global pay television services (Guardian 16 October 1996). The England-Italy World Cup qualifying match broadcast in February 1997 reached a record 3.6 million UK viewers out of a total of around six million BSkyB subscribers. BSkyB’s first experiment with PPV sport on the night of 16–17 March 1996—when 600,000 subscribers (14 per cent of their total) paid £10–£15 to watch a live boxing contest between Mike Tyson and Frank Bruno in the early hours—indicated the scale of PPV revenues that could be extracted from sports fans. Digital subscribers to Telepui in Italy and Canal Satellite in France can already buy virtual ‘season tickets’ to premium football league matches, and BSkyB digital satellite service includes a similar facility (Screen Digest 1997c: 86).⁵

PPV soccer is likely to play a major part in the development of digital TV in the UK One survey conducted in June 1997 found that nearly ten million UK households (41 per cent of the total) would be willing to pay for PPV events for one or more of the four major sports: Premier League football, world title boxing matches, Formula One motor racing and top golf tournaments (New Media Markets 12 June 1997, vol. 15 no. 21).⁶ This suggests that even though currently only around 25 per cent of UK households have access to subscription sports channels, once digital conditional access systems are more widely deployed, more households are likely to opt for either subscription or PPV sport. Since pay TV companies can pass their programming costs on to a self-selected audience, they will usually be able to outbid free-to-air broadcasters for sports rights, thereby increasing the incentive for dedicated fans to subscribe to their services.

Films are likely to be the other key driver of digital pay TV. Revenues from cinema admissions—at 31 per cent of all EU consumer spending on films—are already less than those either from pay TV (34 per cent) or from video sales and rentals (34 per cent) (Screen Digest 1997a). The advent of digital NVOD and, in time, true video-on-demand services, will mean that much of the money currently spent in video shops will be spent in the home as the TV set is used to download films from a virtual video store either on a ‘rental’ basis, for single use, or for purchase.

Broadcasters in France, Germany and the UK have been engaged in a scramble to buy the film rights they believe will help them sustain their digital services. Leo Kirch in Germany almost bankrupted his company when his 9.3 billion DM expenditure to secure ‘nearly all the TV rights to Hollywood output’ for the German market was followed by the failure of his digital channel, DF1, to attract more than 40,000 subscribers in its first year (Financial Times 21 Oct. 1996, Les Echos 17 June 1997) UK broadcasters Carl ton have been engaged in a similar, though smaller scale, exercise to build up their catalogue of film rights. In France, meanwhile, the two rival digital TV packages, TPS (Television par Satellite) and Canal Satellite (operated by Canal Plus) have been engaged in a bidding war for US film rights, where the exclusive long term rights Canal Plus has acquired to the output of Disney, Warner, MCA, Universal, Columbia and Twentieth Century Fox, have been cited in a complaint by TPS to the French competition authorities (Canal +1997:52, Le Monde 28 July 1997). Alongside their catalogues of Hollywood films, most digital operators will also offer specialist ‘adult’ channels which, given their relatively low production costs, can be very lucrative. In Germany, where pay channels face the obstacle of competing with the thirty free analogue channels that most households can receive via cable, the ability to offer adult pay channels may be particularly important in encouraging consumers to switch to digital TV.⁷

New services and commercial convergence

Digital television will be used to develop a wide range of other services in addition to conventional TV programmes and pay sport and film channels. One of the first new services introduced by Canal Satellite in France was enabling customers to download computer games through their digital decoder boxes. From the end of 1997 Internet access, e-mail and other interactive services such as home banking were also available via set-top boxes. In the UK the services planned by British Interactive Broadcasting Limited (BIB), the joint venture between British Telecom, BSkyB, Midland Bank, and Matsushita Electric, will also offer viewers access to services such as home shopping, banking, travel information and the Internet, and sending and receiving e-mails from their digital television via a telephone connection. Convergence will also work in the opposite direction. It is already possible to broadcast audio and poor quality moving images over the Internet. Within five to ten years it will be possible to broadcast something much closer to television over the World Wide We...

Table of contents

• Cover Page
• Routledge Research in European Public Policy
• Title Page
• Copyright Page
• Tables
• Preface and acknowledgements
• Abbreviations
• Introduction by the series editor
• Introduction by the author
• Part I: The impact of convergence
• Part II: Regulating analogue broadcasting
• Part III: National and European responses to digital broadcasting
• Part IV: Conclusions
• Notes
• Bibliography