UK digital telly

Summary

Looking at one model of market reform within the digital TV broadcasting market.

Some of you may have seen the Panorama report that contained allegations about hacking of the now defunct “ONDigital” platform. It makes this column in the Telegraph from back in 2002 all the more interesting.

I followed the trials and tribulations of OnDigital – later ITVDigital with interest back in 2000. As Fleet Street Fox said, there were a whole host of other reasons why the company failed, with or without what has been alleged. At the time, the two big things for me that stood out were:

  1. the massive contract ONDigital signed with the Football League which was one of the key reasons why the firm went into administration
  2. the much smaller package that ONDigital offered compared to Sky – which the latter made hay with in its advertising.

One of the jokes going around at the time regarding the football deal was that the number of subscribers were so small it would have been cheaper to have put pay-per-view subscribers up in an expensive accommodation, drive them to the games in limos and give them lots of spending money instead of paying to broadcast the games. The fallout from ONDigital – subsequently renamed ITV Digital (before it went under) was that it put football league clubs in a precarious position. The problem for the clubs was that the Football League had failed to secure guarantees from the company’s backers – Carlton & Granada. Hence when the League tried to sue the latter two, they lost.

This left Sky with huge monopoly power over the digital TV market, one that has proved to be a huge cash cow for its shareholders – reflected in the desire by majority shareholder News International to bid for control of the whole company. (Something that was ultimately derailed by the allegations around phone hacking.) As an aside, one of the other things worth noting just before the millennium was the blocking of BSkyB’s bid for Manchester United – this was before the Glaziers came in. One wonders what things would have looked like for both digital TV and sports journalism had that bid succeeded. Could it, for example have led to further bids for other football clubs, leading to a system of ‘franchises’ similar to that in the USA?

Bundling

One of the features of the communications market is the ‘bundling’ of services – TV, internet and phones. You could say that ITV Digital and Sky were & are examples of bundling within television – being commissioner, producer, broadcaster and platform provider for TV services. A few years ago both the BBC and Channel 4 were forced to open up their systems of commissioning, which is one of the reasons why you see the logos of a variety of different companies at the end of the credits when programmes end. Before then, much of the production was done in house – I assume. (Either that or I just didn’t notice as a child).

For the likes of Sky, I can’t help but think that there’s a clear incentive for say the producers of the sports channels to give a better deal for the company’s digital TV platforms than to other providers such as Virgin or BT – and the now defunct ITV Digital. The illustration of this was the move by the regulator OfCom to force the former to reduce its wholesale fees to rivals. The model of digital TV providers being broadcasters at the same time strikes me of a model similar to that of now defunct tube maintenance firm Metronet. It caused a huge headache for the government of the day. It also left a huge tab for the taxpayer – nearly half-a billion pounds worth. One of the key reasons was the parcelling out of contracts to the shareholding firms, rather than engaging in competitive tendering that happened on non-Metronet-maintained lines. This made me think: Should there be a formal separation of broadcasting channels from the providers of digital TV platforms?

Would would separation of functions look like?

Each channel would be responsible for negotiating with the digital platforms (e.g. BT/Virgin Media/Freeview/Sky) for the terms and conditions for their content being broadcast. Rather than the bundling up of packages, it may – and in the grand scheme of things should – lead to a system where customers can pick and choose which channels they want in their digital TV package and which ones they do not.  Would such a system make for a more genuinely competitive market both for TV audiences and for digital TV platforms? Would it also reduce the control that the major broadcasters have on TV output? The figures from OfCom on who has what market share make for interesting reading.

The one thing I haven’t considered in this is the blurring of the lines between TV and the internet. What impact is this likely to have? Would such a separation of functions support new internet-based TV channels going mainstream?

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