Executive Summary

Sky Digital was launched on 1st October 1998, and ONdigital was launched on 15th November 1998. By summer 1999, digital cable will also have launched commercial digital television services. Foreseeing the full consequences of the digital television revolution will be impossible for some years to come. However, the impact of this new medium will be far-reaching, affecting the broadcasting industry in particular and the wider business community generally. The challenges posed by the onset of digital broadcasting are potentially huge. A new world of low-cost entry to broadcasting and a huge expansion in the number of producers will pose serious questions for industries as diverse as advertising, retailing and electronics manufacturing.

The Government has committed itself to review analogue switch off, on the fifth anniversary of the first multiplex licence, or when 50 percent of viewers have access to digital services — whichever is the sooner. The most serious challenge facing prospective digital broadcasters is persuading viewers to buy the set-top box needed to receive digital broadcasts on their analogue television sets. This will pose problems for both Sky Digital and ONdigital. The cable operators are proposing to rent out digital decoders to consumers and, despite cable's later entry to the market, this may ultimately prove to be decisive in marketing terms.

All the major players, both within the commercial terrestrial and publicly funded sectors, have plans to introduce digital television services by summer 1999. Every new recent television (TV) service has experienced a slower public take-up than expected, and losses are higher and longer lasting than was generally anticipated. In any event, digital will have a difficult time establishing itself. British Sky Broadcasting's (BSkyB's) considerable resources may subsidise the huge losses digital satellite will incur, but the consortium behind ONdigital looks as if it may struggle if revenues fall too far below expectations. Despite what is likely to be a late start in the race, Key Note believes that digital cable will ultimately overtake digital satellite dish penetration; this will probably occur at some point during 2002.

Despite this trend, many of the programmes viewers will buy from the cable operators will, in fact, be BSkyB programming; hence BSkyB will receive a significant portion of the revenues from those viewers. By 2003, there will be just over 3 million digital television subscribers in the UK, just over half of whom will be subscribing to cable services. The BBC is predicting that around two-thirds of television homes will be digital by 2007.