Speech given to the London Business School - Media Alumni Dinner
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 大象传媒 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 大象传媒'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 大象传媒 did in 2002.
But it's
important to understand how the 大象传媒 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 大象传媒 were
involved in an historic transition converting an analogue 大象传媒 into a
大象传媒 appropriate for the digital age. Our creation of an expanded range
of television, radio and interactive services was the biggest expansion
of choice in 大象传媒 history.
In addition
to 大象传媒 ONE and TWO, and Radios 1, 2, 3, 4 and Five Live the 大象传媒 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 大象传媒 to modern audiences.
Launching
our new digital services was the culmination of years of preparation
and saw the creation of a modern 大象传媒 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 大象传媒, everyone
pays for all our services, it's very important to the 大象传媒 that in the
none too distant future they are available to everyone.
Remember
the 大象传媒 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 拢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 大象传媒'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 大象传媒 was spending some 拢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
拢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 拢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 拢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 拢30,000 per year for
their EPG listing. So for ITV it was like buying a 拢30,000 car
and being charged 拢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
大象传媒 the Oftel ruling on ITV meant we could see the writing on the wall
and that the 拢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 拢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 大象传媒
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 大象传媒 and for audiences in general. Firstly
over the next five years this will save us the 拢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 大象传媒.
Finally the move also means we can make major improvements to the 大象传媒
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
大象传媒 Wales. If you are a Londoner living in Orkney you will be able to
watch 大象传媒 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 大象传媒
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 大象传媒 as we stood
at the start of a new century.
They were
the same core principles on which the 大象传媒 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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