Βι¶ΉΤΌΕΔ

Speech given to the London Business School - Media Alumni Dinner

12 March 2003
Printable version

Thank you Kat for inviting me to speak at your Media Alumni dinner. I am not an Alumni of the LBS myself, I'm a Harvard man myself, but I have been there enough times and, more to the point, I have paid for enough people to go there over the years that I feel I an honorary Alumni.

By complete coincidence I'm also here on a significant day for broadcasting in the UK - a day which, I predict, will turn out to be an important day in the history of our industry. In fact when the UK broadcasting history of this decade is written I suspect the date of 12 March 2003 will be seen as meaningful in the development of digital television.

Now this has nothing to do with my appearance here tonight, as I said it happens to be a complete coincidence that I am talking to LBS Media Alumni on such a day but as I was due to be here talking to such a media savvy audience I thought I'd use the opportunity of this speech to explain why what I'm going to talk about tonight is so important.

This morning the Βι¶ΉΤΌΕΔ announced that from 30 May onwards, you will no longer need to have a BSkyB card or even a BSkyB box, in order to receive Βι¶ΉΤΌΕΔ's eight public service channels via satellite.

In other words our services will no longer be encrypted. They will be openly available to anyone with a satellite dish and box.

Not a big deal you might think. Wrong.

The problem is, explaining why it matters is complicated and many of the people I have tried to explain this to have struggled to understand both the mechanics of satellite broadcasting and the significance of this decision.

Of course as media graduates of the London Business School this shouldn't be a problem for you but just in case some of you are not completely au fait with the complexities of digital broadcasting let me try to give my account of what this means.

First of all I need to talk about the birth of Freeview. When Freeview was launched last October it saw the creation of the UK's first totally subscription-free digital television service. It was probably the most significant thing the Βι¶ΉΤΌΕΔ did in 2002.

But it's important to understand how the Βι¶ΉΤΌΕΔ got involved in Freeview and, more importantly, why.

You will all remember this time last year, the papers were devoting page upon page to the death throes of ITV Digital and in particular how, if it went under, it threatened the whole future of the Football League. When ITV Digital was finally put out of its misery and into administration on 27 March, it felt like something of a relief.

Now ITV Digital failed for a range of reasons. The technology didn't work. The proposition wasn't very clear. Most important of all the competition for pay television in the form of BSkyB and Cable got there first - and was far too strong. In fact ITV Digital would make a very good business school case, how to lose a billion pounds of shareholders' money without really trying.

In fact what our research showed us was that there wasn't one country in the world where three different pay television platforms - satellite, cable and digital terrestrial - were all financially successful.

Around the same time as ITV Digital was struggling, we at the Βι¶ΉΤΌΕΔ were involved in an historic transition converting an analogue Βι¶ΉΤΌΕΔ into a Βι¶ΉΤΌΕΔ appropriate for the digital age. Our creation of an expanded range of television, radio and interactive services was the biggest expansion of choice in Βι¶ΉΤΌΕΔ history.

In addition to Βι¶ΉΤΌΕΔ ONE and TWO, and Radios 1, 2, 3, 4 and Five Live the Βι¶ΉΤΌΕΔ was going to offer people a choice of a further six digital TV channels, a total of 10 radio networks and a range of interactive services.

And this was on top of our existing regional television and radio services. Our new channels included services for children, art lovers, young adults and ethnic minorities. They aim to reflect modern British culture and broaden the appeal of the Βι¶ΉΤΌΕΔ to modern audiences.

Launching our new digital services was the culmination of years of preparation and saw the creation of a modern Βι¶ΉΤΌΕΔ capable of serving all our audiences across all three media - television, radio and online.

But we knew that launching them was only the first stage of what was going to be a much more difficult process. We always knew that the greater challenge would be ensuring that everyone could receive all our new digital services. And given that everyone pays for the Βι¶ΉΤΌΕΔ, everyone pays for all our services, it's very important to the Βι¶ΉΤΌΕΔ that in the none too distant future they are available to everyone.

Remember the Βι¶ΉΤΌΕΔ was founded on the principle of providing quality programmes for everyone - or as the first Director General, John Reith, put it: "To bring the best of everything to the greatest number of homes."

Even before the crash of ITV Digital we knew achieving universal coverage would be a big challenge. A two-speed Britain was already emerging in which more than half the population had not been convinced to make the switch to multi-channel TV.

This was why we teamed up with Crown Castle to bid for the licences to run the replacement for ITV Digital. We believed it was time for a fresh start and a completely different approach if everyone was one day to have access to the choice and benefits which digital has to offer.

Our thinking was underpinned by two certainties: First, 14.5 million homes in Britain do not today have digital television. The question we faced was - why and how do you persuade these people to go digital?

And based on our research we believe that up to 10 million homes would like more than just five channels - for free.

Our second certainty was that any proposal to the ITC, about what to do with the digital terrestrial frequencies, had to offer something that was both easy to understand and free, once people had bought the equipment.

Our solution was Freeview - 30 free channels and services which 75% of the population could receive simply by buying a Β£99 box and plugging it into their television. We sorted out the technical problems which had dogged ITV Digital - you no longer get interference if a bus goes by or you open the fridge door - and marketed the platform as a new way of getting the Βι¶ΉΤΌΕΔ's free to air digital services.

Only now, four months in, are we are starting to see what a remarkable success it is proving to be. Half a million Freeview boxes have already been sold, making it the fastest growing digital service, ever, in the UK.

There are now 1.4 million Freeview homes in the UK - a bigger market, after just four months, than ITV Digital ever achieved and it would have been more but for the fact that the set top box manufacturers couldn't keep up with the demand. They tell us the demand is exceptional.

It's been a fantastic fresh start for digital terrestrial television which, let me remind you, appeared to be dead in the water just 12 months ago.

So now I've give you the background, let me now turn to today's announcement - our decision to broadcast all our services on digital satellite free from any barriers to who can receive them. You will no longer need a Sky box or Sky card to receive any of our channels on satellite.

Now it's important to remember that this is a platform which has suffered none of the problems which were pulling DTT down this time last year. It's technically robust, offers huge choice and is backed up with effective marketing.

Pay television on digital satellite has proved hugely popular with certain groups of people - but not everybody.

But there are drawbacks with the current digital satellite model. Two in particular are relevant to our decision.

First, digital satellite has always been presented as a purely subscription-based offering, something we know from our research and the experiences of Freeview that does not appeal to millions of people.

As such, people who would like to go digital to receive more free to air channels haven't been able to do this on satellite. And remember 98% of homes in Britain can receive satellite while Freeview is currently only available to 75% of UK homes.

Second Sky's conditional access system has meant public service broadcasters paying hefty fees for the scrambling of the signals - or encryption to use the jargon.

This was mainly to ensure that premium sports and movies didn't spill over into Europe and breach agreements on rights. The Βι¶ΉΤΌΕΔ was spending some Β£7 million a year with Sky on this but the alarm bells started ringing for us when ITV, who were latecomers to digital satellite, were charged Β£17 million a year before Sky would let it use its conditional access system.

Now at this point it's important to realise that the Β£17 million didn't pay to get the signal to the satellite, didn't pay for the transponder costs, nor for the costs of beaming the signal down to the box next to the television. The Β£17 million was solely for the cost of using the Sky card and encryption system only.

Free to air broadcasters, like CNN, only pay Sky Β£30,000 per year for their EPG listing. So for ITV it was like buying a Β£30,000 car and being charged Β£17 million to use the sun roof.

ITV appealed to Oftel that this price was too high, but in a surprising ruling Oftel decided it was fair even though ITV was a public service broadcaster and didn't use Sky's encryption system for pay television. Oftel argued that it was fair for ITV to pay a major contribution towards the cost of Sky's policy of giving away boxes - even though ITV was already available in every home in the land through terrestrial television.

Now I don't blame Sky for trying to maximise its income. It is a business and its board has a duty to shareholders to maximise profits. But in its ruling Oftel completely failed to protect ITV or any of the other terrestrial public service broadcasters. We were left at the mercy of the Sky monopoly of satellite broadcasting in the UK, until today.

At the Βι¶ΉΤΌΕΔ the Oftel ruling on ITV meant we could see the writing on the wall and that the Β£7 million a year we were paying to Sky would only grow, possibly by leaps and bounds, when our current contract with Sky ended on 30 May. And so it turned out to be. They recently wrote to us with revised terms for the next five years. It's a complicated deal but basically we would have to pay Β£85m over the next 5 years for a service we believe we no longer need.

Now all that is about to change. From June this year, we will broadcast Βι¶ΉΤΌΕΔ channels free from encryption. This brings us into line with the way most other public service channels are broadcast in Europe - and we will consequently be paying very little to Sky.

It's possible for us to do this now for two reasons. To reiterate, firstly we are nearing the end of our current five-year contract with Sky and have no legal obligation to renew. And second we have an opportunity to move all our services to a recently-launched satellite whose signal is aimed specifically at the UK and Ireland and will not spill over across the rest of Europe. This means many of the rights problems we would have had on the existing satellite disappear.

This move has great advantages for the Βι¶ΉΤΌΕΔ and for audiences in general. Firstly over the next five years this will save us the Β£85 million Sky was trying to charge us, and clearly our job is to make sure our money is spent wisely in the interests of the licence fee payers who pay it - not directly to Sky shareholders.

Secondly this is a great chance for us to deliver significant long-term benefits to UK audiences and to help drive digital so that more homes will be able to receive all our services. It allows digital satellite to break free from the straight-jacket of subscription. It will increase its appeal to a wider cross section of people, many of whom are put off satellite by the need for a contract.

Third it offers a subscription-free alternative for the four million people outside the transmission range of Freeview. Unencrypted signals will mean you can buy a satellite kit over the counter and get a wide range of free to air channels without a contract. In other words, it extends the principle of Freeview to digital satellite.

Fourth it makes the likelihood of analogue switch off by the end of this decade more likely, and that's a policy supported by all the main political parties. When this happens it will mean everyone will be able to receive all our digital television services and true universality will once again exist for the Βι¶ΉΤΌΕΔ.

Finally the move also means we can make major improvements to the Βι¶ΉΤΌΕΔ regional services we offer via satellite to our audiences all over the UK. This is a long-held ambition and is in keeping with on-going additional investment in our nations and regions services.

By no longer using the Sky conditional access system we will be able to use some of the money saved to offer all of our different services for the nations and English regions to satellite viewers anywhere in the UK.

That means wherever you are from and wherever you live now, you will be able to choose the local news and other programming you want from anywhere in the UK. If you are a Welshman living in Yorkshire you can still watch Βι¶ΉΤΌΕΔ Wales. If you are a Londoner living in Orkney you will be able to watch Βι¶ΉΤΌΕΔ London.

Just think what a benefit that is for the huge numbers of people who have moved away from the place they were brought up but want to stay in touch with their home area. It's a great example of using technology to extend the choice we offer our viewers.

To sum up I'd like to make clear what our decisions on Freeview and digital satellite have in common. For me, they go to the heart of what the Βι¶ΉΤΌΕΔ is here for.

When I gave the McTaggart Lecture at the Edinburgh TV Festival soon after becoming Director General I set out what was important for the Βι¶ΉΤΌΕΔ as we stood at the start of a new century.

They were the same core principles on which the Βι¶ΉΤΌΕΔ was founded in the last century: delivering quality and choice; providing good value; reflecting the whole UK and making our services universally available. But now we had to apply them to a completely new broadcasting environment.

Both Freeview and our decision today to offer our services free to air on satellite are borne of our continuing commitment to those aims.

We are making all of our services available to more people. We are improving the quality and range of what we offer and we are providing better value for money from the licence fee.

Our decision to get involved in Freeview helped rewrite the rules of digital television and has demonstrated the benefits of providing people with an alternative to subscription television.

Our decision to broadcast our services over satellite, bypassing Sky, is no less significant.

It too will help us follow Reith's principle of bringing the best of everything to the greatest number of homes.

Thank you.

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