Top Up TV takes low-cost route

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Low cost digital pay-TV may yet prove vital to analogue switch off. Top Up TV's Ian West states why this is a recipe for success.

West, together with ex-BSkyB colleague David Chance, was part of an unsuccessful consortium that bid for capacity on the UK digital terrestrial multiplexes freed up by the collapse of ITV Digital. Chance's consultancy work for the failing platform had convinced him that you had to go for a low-cost model.

This reinforced the pair's earlier conviction when they were at Sky and putting together the original DTT business plan for British Digital Broadcasting (BD:cool: with Carlton and Granada. "It was always meant to be a differentiated service from Sky and cable because of the capacity constraints. ITV Digital tried to go head to head. You're always going to lose if it's at the same price with less capacity." Competition concerns meant that BSkyB was forced to leave the consortium, and what became ITV Digital was launched as a premium service, competing head-on with Sky and cable.

The re-advertising of the commercial multiplex licences gave West and Chance the opportunity to put their theory into practice, and until the week before the bids were due, they were in a consortium with ITV, C4 as well as the BBC. In the event, the BBC, together with BSkyB and transmission supplier Crown Castle, were awarded the licences for the Freeview service. Nevertheless, according to West, the regulators were positive about the proposition.

QAM CUTS. Fast forward to 2003. At the beginning of the year, TV watchdog the ITC had to make a technical decision about the transmission mode for the multiplexes.16 QAM, as advocated by the BBC, would limit capacity and may marginally improve coverage, sticking at 64 QAM would increase the number of channels. According to West, the ITC was minded to give multiplex operators the flexibility to do one or the other at their discretion. "But only if there was going to be a real proposition in the market that was going to benefit the consumer," observes West. "They asked us whether we'd look at it again if there was more capacity. We always felt we had to have a minimum of five video streams in order to launch."

"To be honest, the plan is a lot better this time," admits West. "In the original bid, we were on multiplex D, with a regional and phased roll out over time. This time, we're on multiplex A and multiplex 2 with one hundred per cent penetration of the Freeview audience, if they had CA STBs. In addition, the bid plan was for a £25 million plus peak funding; now we're anticipating a lower range at £10 million to £15 million, so we're very glad we didn't win," he adds wryly.

Nevertheless, West admits there are struggles ahead. "There are now around 750,000 ITV Digital boxes as opposed to 1.5 million back then, so we've got harder work to get the subscribers, but with the funding being lower, we don't need as many subscribers to get to break-even." West suggests that will be reached at 250,00 subscribers.

CHANNEL CHOICE. A recent glitch had been the inadvertent loss by some Freeview customers of existing channels during the addition of channels to the platform. West suggested the problem lay with certain low-cost boxes. "There are some that have been sold at thirty to forty pounds and have got fifty channels in their memory. If you've got sixty to seventy channels and radio/text services on the system, it makes it kind of hard to work. There is a very small proportion of the three million boxes out there that may have problems. There's nothing we can do about that as it is down to the manufacturers."

Channels offered by Top Up TV for £7.99 per month include a range of the most popular non-BSkyB entertainment services, such as E4, UK Gold and Discovery as well as two children's and one news service. Also available as a stand-alone is adult entertainment service TVX. "We go 30 days, month-to-month as a minimum commitment; TVX will have an initial, 12 month contract," explains West.

Conditional access will be carried out using Nagra France's MediaGuard. "It's a substantially upgraded version from the ITV Digital one," notes West, mindful of reports that the DTT platform suffered serious piracy issues. "Obviously every pay-tv company is concerned about piracy," he concedes, but suggests that with the technology, and without premium movies or sport, "the incentive for pirates should be a lot less. Eight pounds a month as opposed to around £35 in the ITV Digital days dramatically reduces the incentive for pirates. But we'll see."

LAUNCH CONTROL. A three-phase launch is planned. The first phase, at the end of March and through April, is to target ex-ITV Digital boxes. "We know there are roughly 750,00 out there and we know we can download software to them and around 95 per cent of them should work."

Phase two is from May. This involves conditional access modules (CAM's) built by SCM which are designed to work with integrated digital TVs, of which West estimates there are some 450,000 already in the market and there are expected to be 300,000 to 500,000 sold this calendar year. "IDTVs potentially represent a very good opportunity for us," claims West. "You'll be able to buy a CAM off our web-site and there will be retailers who will package up a conditional access module for around £40 that you plug in to the back of your TV, put your Top Up TV card in and you're away."

Phase three is from June and over the summer, with new boxes incorporating conditional access - priced at some £10 more than non-CA units - coming onto the market. As West observes, Freeview has hardly encouraged manufacturers to put CA slots on set-top boxes, the suggestion being that the BBC doesn't want a pay option available because they don't want the government to latch on to it as a partial alternative to the licence fee or even as a different way of collecting part of the fee.

BOXING CLEVER. While regretting the consequences of the BBC favouring dumb boxes, West concedes the Corporation has done "a fantastic job" on Freeview. "They've promoted it aggressively, they've driven the market and we want them to continue doing that. It's in our interests that happens."

Failure to secure the DTT licences in 2002 allowed Top Up TV to take a bit of time to negotiate deals that are more flexible and lower cost than originally forecast. "At the time, the bid process was a bit rushed. We had three weeks to raise £25m to £50m on the back of ITV Digital going bust," recalls West. "Now, with the funding coming down, it was important to hit the lowest price point we could. £7.99 was always a good target. Anything under £10, we would have gone with, but by being able to hit £7.99, we think that's an even bigger bonus. I'd love to hit five (pounds) but we just can't do it for five."

GNOME MESSING. West admits to Top Up TV having spent quite a lot of money on the launch promotion plan, which centres on the efforts of ‘Little Top Up' - a cheeky (and ugly) gnome character - to watch the service. "We want to tell every body who's got a Freeview box that we're here and they can decide whether they want to take it up or not."

West's pay-TV platform experience suggests he has a better chance than most of hitting on the right formula. "We're trying to create a new concept in doing pay-TV and we've looked at a whole number of platforms. David and I, either individually or together, have probably been involved in around fifteen or so pay platforms around the world. In many European countries, you've got thirty to fifty per cent penetration of digital TV. Every government wants to get to 100% so they can get to analogue switch off."

According to West, the 100% target can be achieved either by a Freeview type proposition or a low ARPU proposition but better still is a choice of both. "Not everyone out of the base that we still need to convert can afford forty to fifty pounds a month for ‘regular' pay-TV. On the other hand, our view is that if you're a free to air channel, you're losing money at the moment and in an ‘investment phase' on Freeview for the next few years. Most of the next 10 channels would have been shopping or news channels and that's it. So by adding our channels to that proposition, we are bringing richer content and that will help drive DTT and Freeview."

CONVERSION TABLES. West likens Top Up TV to a low-cost airline model. "We're trying to create a variable cost model with heavy onus on web sign-up where the connection fee is halved. That breaks-even with 250,000 subscribers. That's unheard of anywhere in the world." Operating with just five full-time staff, West reiterates that Top Up is not going to market to the outstanding 12 million analogue homes to try to convince them to subscribe digital TV. "That's Freeview's job, that's Sky's job, that's cable's job. Once they've got Freeview, then we'll try and convert them."

West is confident that the £10 retail price differential for the STB will succeed. "If you're buying a box, I think most people will buy a more future-proof box for £10 extra. If you're paying £69 today, you might want Top Up TV in the future. We have to make sure that the segmentation is clear." And what if he succeeds in giving his customers a real taste for pay-TV and want to upgrade? "Some people may well try us, then find that they like it, and go to Sky. That's the risk we run."
 
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