In two of Europe’s biggest digital television markets, new satellite platforms are emerging to serve the lower end of the market. Operators BSkyB in the United Kingdom and Premiere in Germany have mainly targeted the high-end subscribers willing to pay a certain amount per month for pay-TV, leaving significant parts of the populations in both countries untapped. Those consumers who have no intention of paying but would still like access a digital alternative now will have an option.

United Kingdom

Two of the United Kingdom’s main public broadcasters, the BBC and ITV, will launch a free satellite offering in the first half of 2006. The offering targets areas where households cannot get access to the hugely popular digital terrestrial television service, Freeview. which already is in around 5 million households and could overtake BSkyB as the leading digital platform in the country by next year. Freeview is offered b DTV Services Ltd., which was created by shareholders BBC, Crown Castle International and BskyB.

Up to 28 percent of the U.K. population do not have access to Freeview, giving BBC and ITV a healthy target market for their service, Tom Betts, COO of ITV’s consumer division said. “They tend to be the more outlying rural areas, therefore, also not reached by cable,” he said. “The alternative to analog to date has been establishing a relationship with BSkyB. The idea of [our offering] is to give those households an alternative which is modeled very closely on the Freeview offer itself.”

BSkyB also provides a free satellite service, but the offering is intended to ultimately try and upsell customers to the company’s pay-TV offering. Betts believes that the BBC- ITV free satellite offering will appeal to consumers who do not want a relationship with BskyB. “They know that with the [free satellite] relationship with Sky that they will try and market services to you and upsell you to pay and premium services. [This] is about giving those households a choice,” he said.

BSkyB Welcomes Competition

BSkyB welcomes the launch of a new free satellite service in the United Kingdom, a company spokesman said. “Freesat services already form part of Sky’s growth strategy, and we welcome increased promotion of satellite services by the BBC and ITV,” the spokesman said. One of the reasons Freeview has proved so popular is that set-top boxes can be acquired for around 50 British pounds ($91.20) or less, and users can gain access to around 30 television channels as well as radio channels.

The potential costs for BBC-ITV customers free satellite service users “will depend on manufacturers,” Betts said. “It could be that it costs more than a Freeview box because you need a dish to go with it, but we would not expect to it to be out of kilter with the service Sky offers.”

One of the main reasons for launching the platform for ITV and BBC is to make sure their channels are seen as widely as possible. For ITV, which derives a lot of revenue from advertising, this is critical, Betts said. “What we want to do is enable viewing of the ITV multichannel family and to sustain our broadcast share for the future,” he said. “We are interested in getting our channels into as many homes as possible. By the time [the free satellite service] is being marketed, we would expect all of our channels to be unencrypted. So there will be seven ITV channels available on the offer. There will be nine BBC channels.”

Paul Erickson, an industry analyst at IMS Research, believes ITV’s entrance into the digital television market is a smart move for the broadcaster. “ITV has been facing the prospect of declining ad revenue if people continue to shift to pay rivals, namely Sky,” he said. “Teaming with a strong brand like the BBC and offering more channels than Freeview allows them to field at least on the surface what appears to be a decently compelling free digital TV offering for the consumer.”

Erickson wonders just how competitive the new offering will be since BskyB’s service is not a stand-alone business. “Sky itself has admitted that [this] is not its core business and it prefers to concentrate on promoting paid services instead,” he said. “Their [service] can thus be seen as a competitive loss leader. It does not have to survive based on its own ad revenue or normal metrics of performance as the costs are subsidized by the Sky pay-TV operation.”

Betts admits that take-up of the BBC-ITV service could be slower than the rollout of BskyB’s free satellite offering. “It is difficult to tell what the take-up of the service will be,” he said. “I think there are some distinguishing features between [the offer] and Freeview, which will probably mean that the take-up of [the BBC-ITV offer] could be slightly slower.”

Germany

In Germany, the digital offering, easy.TV, is different from Freesat as it is a pay-TV offer, but it is still targeting the lower end of the market and hoping to exploit the need for more content variety at a fraction of the price of other pay-TV alternatives.

While Germany has a much smaller digital penetration than the United Kingdom and also is one of the strongest free-to-air markets in Europe, the potential market for easy.TV is about 30 million households, said Lawrence Williams, director of product management at Primacom, the operator behind easy.TV. “We are looking to be a provider in the more low-to-mid-tier segment,” he said. “Realistic penetrations in the market are anywhere between 8 to 15 percent. Those are our goals. To make money with this project, [we need] single-digit market shares and we are all happy.”

About half of the households that easy.TV is targeting already are hooked up to the Astra satellite system, so they would only be required to buy an easy.TV-ready set-top box. The remaining households would have to buy a set-top box and dish, at a cost of about 100 euros ($122.80).

Primacom has modified its business model in order to differentiate its offering from other television services. One of the key points is that customers are not tied into long- term contracts and must renew the service each month,. “If a customer after 30 days does not reorder the package, the screen goes blank,” Williams said. “They have to order it again. In the German market, this started with the GSM business. The market was completely plagued with contracts, which tied in people in to long-term contracts. It has put a dampener on a lot of development here. This is something that we don’t do.”

The other key factor for the easy.TV service is that users will be able to buy specific channels instead of being forced to pay for the entire service. “We are finding out that this is not what the customers want,” Williams said. “What they want is to order the channel they want to watch. They already have 30 to 40 channels. They do not need to have 150 channels. The consumer doesn’t want to pay $30 to $40. He wants to pay $4 a month for the one channel that he really wants.”

Not Competing With Premiere

Premiere, like BSkyB, welcomes the entrance of a new satellite player into the market. “We don’t consider the entry of easy.TV into the TV market as a competitive threat,” a Premiere spokesman said. “Quite the opposite: It can only be a good thing if everyone is interested in pay TV and believes that this is a business with a bright future. Premiere has an unbeatable lead. If niche providers now want to join in, so much the better.”

Easy.TV is not targeting Premiere’s 3.5 million subscribers, Williams said. “I am interested in going our way and discovering new customers and bringing on customers that have not been willing at this point to fork out larger amounts of capital for their monthly television,” he said. “We are offering a service where customers can pick and choose what they want. We are probably more a low- or mid-tier player on the cost side of things.” Williams did not share the company’s first year goals for subscribers.

The key for easy.TV will be building consumer awareness over the next year, and making customers aware of the potential digital television options available to them. “I think the biggest challenge for us is communication and communicating the product into the market place, finding its positioning, etc,” he said. “Speed is of the essence and we are trying to get ourselves positioned in such a way that a very large majority of the [free-to-air] models will have easy.TV inside. That is our biggest challenge at the moment.”

—Mark Holmes

(Robert Fraser, BSkyB, Robert.fraser@bskyb.com; Jim Godfrey, ITV, Jim.godfrey@itv.com; Paul Erickson, IMS Research, Paul.Erickson@IMSRESEARCH-USA.COM; Julia Buchmaier, Premiere, Julia.Buchmaier@premiere.de; Thomas Chojnacki, PrimaCom, Thomas.Chojnacki@primacom.de)