THE FUTURE OF DIGITAL TELEVISION

1 THE FUTURE OF DIGITAL TELEVISION Presented by Peter Webb, former ABA Chairman at the International Institute of Communications, at the offices of Allen, Allen & Hemsley Solicitors, Sydney, Australia. 13 August 1997 2 It wouldn’t be a conversation held in the offices of solicitors if the opening gambits weren’t about defining your terms. Digital television is one of those terms that badly needs definition. Most references to digital television are not, in fact, accurate descriptions of the qualitative difference that potentially awaits us, but refer instead to the quantitative difference it offers. For the most part digital television represents ‘more of the same’ television, when it should represent the prospect of much better television. For throughout most of the world, digital transmission, not digital television, is what’s going on. Let me give you quickly the issues I think are important to highlight. In technological terms, analogue transmission has reached the end of its tether, and, while it has served the world wonderfully well down through the years, it is now an impediment to change. Over ten years ago, the television world knew where it wanted to go next. It wanted advanced television - television that could be seen on big screens with picture resolution as good as could be enjoyed at the cinema. An assault began on analogue technology in order to wring this next big thing out of it. This assault failed. It was itself assaulted by the growing realisation that digital technology provided the most hopeful means of achieving high definition television. As early as the mid-1980’s, Australian engineers were, I’m pleased to say, in the digital vanguard, and their persuasiveness in turning the attention of the international engineering community towards digital was duly recognised by both the moving pictures expert group and by the international telecommunications union (ITU). Today digital technology is in everyday use in most television studios, and, internationally, cable and satellite television delivery is rapidly moving towards full-scale digital transmission to end users. So digital’s forward March has been everywhere irresistible except, until very recently, in the field of terrestrial broadcasting. But here too digital now is coming on with a rush. In the United Kingdom, multiplex licences have been allocated to established and new players, but just for standard definition television. UK policy has never fully embraced HDTV (high definition TV) or wide-screen. The rest of Europe is still considering its position. But in North America the pursuit of a digital terrestrial policy has reached an advanced stage, and American policy is squarely focussed on high definition. The American networks have been given adjacent channels for them to develop HDTV on - they will be required to hand back one of their two channels in several years time - and during those years they will simulcast their present standard definition analogue programs alongside the high definition digital versions of them. Set manufacturers will introduce digitally integrated TV sets capable of displaying a high 3 definition picture. American consumers will be faced with the prospect of buying a new HDTV-capable TV set when their present analogue set wears out. For this they will probably pay a premium of somewhere between $1,000 and $1,500 for a top of the line HDTV set, reducing to somewhere between $500 to $750 after five years, and to between $250 and $350 after ten years. They will obviously pay a smaller premium for smaller sets. American program makers are already responding to the high definition imperative. American national cable programmers like home box office, discovery, and time Warner/turner have all announced that they will convert to high definition digital broadcasting by mid-98 or as soon as possible. The American approach, with high definition at its centre, is the approach the ABA prefers be adopted here in Australia. Essentially, the ABA says 1. 2. Australia should adopt a standard for digital television - in doing so it will need to choose between the American ATV system and the European DVB system. DTTB should offer high definition, wide-screen television from the outset, and broadcasters should be required to broadcast substantially in high definition format [but with a useful level of flexibility to broadcast, from time to time, in multi-program mode]. [there should be substantial consumer advantages flow from the adoption of a common or compatible family of standards, between terrestrial, cable and satellite means of delivery, for digital television.] DTTB should use the ‘taboo’ channels between existing channels, and the standard chosen will need to work within the 7 MHz channel spacing used in Australia. There will be a need for simulcasting for a lengthy period, which may fall somewhere between 10 and 25 years, after which PAL services will be turned off. DTTB should start with a development phase of perhaps five years, following a declared commencement date somewhere in the region of late 1999, approximately two years from now. 3. 4. 5. 6. Why this emphasis on high definition TV? HDTV has been defined by the ITU as a TV system having approximately twice the horizontal and vertical resolution of existing television systems. When I was in Tokyo earlier this year I visited the NHK laboratories and looked at their high definition television on 100 cm plasma display panels - the picture quality was dazzling, and I have no doubt that Australian audiences, when offered picture quality of high definition, will embrace it enthusiastically. In short, it looks like cinemascope. When you are looking at standard definition images on the average household television set, the picture clarity is quite good. But try to enlarge that picture and throw it up on a large screen, and the loss of picture resolution becomes very clear. The burgeoning home-theatre market, as well as consumer research, tell us that consumers want 4 large screens and high definition pictures. Now what about the cost to the five Australian free-to-air networks? Several months ago I estimated at around $210 million the cost to the three commercial networks for the first three years of changing their transmission infrastructure from analogue to digital capacity. I mentioned that this rough estimate did not include all associated costs. Some further estimate of costs is now possible. By this figuring, the seven, nine and ten networks will be required to make capital investments totalling approximately $500 million in the first three or four years of expenditure. As well, they are likely to be required to spend somewhere between $30 million and $50 million a year as operating costs additional to those they presently spend. Insofar as the ABC and SBS are concerned, estimates are less clear, but we might see combined capital costs in the region of $200 million to $250 million over the same period. And the nationals’ additional operating costs could be of similar dimensions to those of the commercial operators. These are very significant sums. When Bob Mansfield conducted his recent review, he identified the transition to digital as a key issue for the ABC, and he recommended the government should consider a “modest one-off injection of capital towards the end of the century to assist in financing (its) digital technology upgrade”. But the Mansfield report contained no estimate of costs. So the conversion cost for the ABC, and for the SBS as well, for that matter, will only become clearer to us over time. As a matter of interest the BBC recently announced its investment plans for putting digital infrastructure in place. The BBC plans to invest an average of 9 per cent of its licence fee income over the next five years building infrastructure and launching services. On current licence fee income of 1.9 billion pounds per year, that is the equivalent of 170 million pounds a year. On top of that, the BBC has pledged an additional 680 million pounds to be invested in existing networks. The BBC will have spent close to 1.5 billion pounds (at 97/98 values) on digital conversion five years from now. From the reports I’ve seen it’s not clear how much of this expenditure will be related to television, and how much, if any, to radio. But during the 96/97 year, the BBC spent three pounds on television for every one pound it spent on radio. Three-quarters of 1.5 billion pounds is still a lot of money. It makes three-quarters of a billion Australian dollars look like an underestimate, if anything. I mention the BBC figures only to demonstrate, in the absence of really precise figures for 5 Australia, that the price of digital television is high for operators. I envisage, to try and put this into some perspective, that Australian commercial television operators will bring forward, over the next three to four years, the capital they would otherwise normally expect to invest over the next decade. What will the Australian free-to-airs get for this level of investment? I think they will get the opportunity to compete in a digital world. But in my view at the present time the long-term future of both national and commercial free-toair television in this country is uncertain while ever they remain stuck in analogue. The fate of the ABC and SBS is linked to that of the three commercial networks. They cannot afford to be in a technological backwater if the commercials, and other television operators, go digital, and they cannot afford to be standard definition if the rest of the industry goes high definition. For its part, the influence of commercial television is destined to diminish in the face of competition from pay TV, and two of its most powerful drivers - movies and sport - have clearly been targeted by its competitors. Should anyone be unduly worried about this? Well, there is no particular public interest in alone ensuring that commercial television continues to make profits. But there are a number of major dependencies we should acknowledge that are related, to some degree or another, to a viable commercial television industry. Apart from the fact that, in a multi-channel, multi-choice world, the ABC and SBS rely heavily on the existence and viability of such an industry, the so-called independent film and television production sector relies enormously on the influence of that sector for its own viability. The private production industry would certainly maintain that, without the commercial networks’ obligations to screen Australian programs, the success of the industry in this country would not be nearly as great as it is today. And then we have an advertising industry, and industries from which it gets its commissions, that all rely on the mass audiences commercial television delivers. And we shouldn’t forget the television viewing audience. One doesn’t ultimately know how many Australians will be prepared to pay for pay TV, and that industry can confidently look forward to achieving, by world benchmarks, very respectable household penetration rates. But even in Warren’s wildest dreams, an audience reach in the vicinity of 100 per cent is not probable. So free-to-air television is likely to remain the television of choice for the clear majority of Australians for many years to come. All of these dependencies are hitched to the health of the Australian commercial networks, whose own fortunes, in turn, are significantly hitched to the health of the American networks. Let’s check their thermometers. During the last financial year the big three American networks - ABC, CBS and NBC - passed another milestone in their retreat from mass popularity. 6 Their combined audience share in peak hours fell to one-half, down from 80 per cent in under 15 years, and down from 60 per cent in three years. NBC remained the most popular network, but its share of viewing in us homes during peaktime dropped from 11.7 to 10.5 - this was less than ABC achieved last year in running second. In Australia the networks’ situation is, at the present time, comparatively much healthier, and I noticed a recent AIS media report suggested that commercial television’s capacity to deliver mass audiences to advertisers was expected to decline only modestly by the year 2000. AIS media suggest that, by 2000, 85 per cent of total media exposure will still be to the four traditional media of radio, broadcast TV, press and magazines. I am not so sanguine about that projection. By the year 2000 the ABA will have completed its review of capital city radio markets and, inevitably, allocated a number of new licences in those markets. The pay TV industry can be expected to have settled down to providing improved programming packages, and to be building a solid, churn-minimised subscriber base. These factors, together with the continuing lack of new, break-through programming in American network television, means that commercial television in this country is eventually going to find it difficult to retain mass audiences of traditional dimensions. Some might have noticed a couple of press articles recently about the decline in audiences for the six p.m. news services offered by the Nine and Seven networks. I don’t know whether this is a real trend or something more cyclical, but anything that improves the attractiveness of commercial television to mass audiences has to be seriously considered by that industry. All five networks are on their own so far as program quality is concerned - only they can decide how much they should spend on programming, both local and foreign, or how innovative they should be in commissioning new programs. But if they want to switch to digital, as I believe they do - and as I believe they must - it seems to me to be in the public interest not to place impediments in their path. After all, cable and satellite pay TV operators are free to move to digital transmission, including high definition, to end users, when and how they choose. FTA broadcasters must await a series of government decisions and maintain their existing analogue infrastructure until some future time, anywhere between 10 and 25 years hence. A very, very substantial capital investment will be the lot of their shareholders, and I can see no damage to the fabric of the public interest from letting them invest in the future of their industry. It will be a short-sighted, indeed myopic, reaction that says, for example, that the state will be doing the networks a favour by letting them have access to the ‘taboo’ channels, and that they should pay some fee for the privilege of access. They will go on paying their licence fee - on revenue, not profits - regardless of their financial position. Even more puzzling is the suggestion that new players should be given access to standard definition digital television channels for the purposes of offering free-to-air services of a narrowcast nature alongside the proposed five high definition networks. Any such service would be, and be seen to be, second-rate and mischievous. Commercial services which can’t sustain mass audiences have no place in the free-to-air industry. 7 If not serving some broad social objective, such as SBS does, niche services belong in pay TV packages, and the ABA has recommended against the use of digital terrestrial broadcasting for pay TV purposes, while the government has ruled out the prospect of a fourth commercial network in Australia. In other words, these are truly silly propositions which serve only to demonstrate that deploring commercial television, and the media generally for that matter, remains a widespread orthodoxy. Government policy-making will, I am confident, be better than this, and I look forward to the government’s confirmation that high definition terrestrial television will be Australia’s destiny.