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Tuesday, May 01, 2007

BBC Trust: Approval of FreeSat

One of the first decisions by the embryonic BBC Trust was the approval last week of the FreeSat platform and it is a really bizarre decision. I say bizarre because when you read the output from the review the new platform makes no sense whatsoever. However, there are a couple of hidden reasons for the platform which the BBC have choosen to remain quiet on.


If we look at the latest digital TV platform take-up figures published by OFCOM, we see that the fastest growing element of the market is the “Free-to-View” element. What is interesting here is the number of “Free-to-View” digital satellite homes which is basically a non-publicised feature of being an ex-digital satellite home.

Basically, Sky does not remove the dish, the set-top box or the coaxial connecting them – so any viewer once the PayTV element of the Sky service is cancelled can watch the 200-odd TV channels and listen to the 100+ Radio channels that are broadcast unencrypted wothout paying Sky anything. It also works the same if someone moves into a home with a satellite dish and coaxial connection – they can buy a set-top box from ebay for next to nothing and connect up. Finally, Sky actually sell for £150 a package of a dish, box and installation services for those who want more channels than Freeview or live in an area where Freeview cannot be received. I’m not sure how many of the free-to-view satellite customers fall into the each type of category, but I have a gut feeling that a lot are ex-payTV who either won’t or can’t pay for the service.

It is in this context that the BBC & ITV have decided to launch a competing service called Freesat. The rationale for this service on the BBC side of the equation is “the need to ensure that the BBC’s digital services are available to all Licence Fee payers.”

Obviously, part of this can be seen as a coverage issue, because it is not economic for Freeview to have blanket coverage throughout the UK. Actual figures of how many homes will not be able to receive Freeview are extremely to hard to come by and although mentioned no figures are actually detailed in the BBC Trust output. The figures I have seen is that 98%-98.5% of the population will be able to receive Freeview post-digital switchover (when the transmission power is on full-blast and all the relays are live) who equates to circa 250k-375k UK households.

BBC estimate that the FreeSat platform will add around 500k subscribers in the "Standard Definition only" guise by 2012, which is less than the Sky Freesat currently have and is growing by around 300k per annum. So this implies to me that more people than “Freeview Blackspot Community” are going to be targeted. More interestingly, the BBC estimate that the FreeSat platform will attract 2.5m subscribers if a "High Definition element" is included in the package.

In my opinion, I think that the BBC see the FreeSat service in a partial way as a hedge against not getting enough spectrum for broadcasting in High Definition on Freeview. I think this is enough reason in itself to allow the FreeSat go ahead for taxpayers – avoiding giving the BBC any more terrestrial spectrum.

On the cost side of the equation, the BBC estimate the cost is substantially lower than £50m per annum although surprise, surprise fail to detail any of the costs. The biggest cost in satellite transmission is the cost of the spectrum and the BBC already rent this (in bucketloads) from Astra – even having channels for each regional service (eg BBC UpNorth). The next biggest cost is subscriber acquisition which is basically the cost of the set-top box, installation and third party charges – the BBC do not plan to be drawn into this market effectively subcontracting out in a similar way for Freeview currently.

Where the BBC will be involved is in the production of the Electronic Programming Guide and Interactive Services (the red button) and this is where it gets extremely tricky in the set-top box design, especially if the FreeSat services are not going to interfere with the Sky Set Top boxes and their software, which is a condition of the approval from the BBC Trust. I can see big arguments in the future between Sky + Freesat over compatability issues.

To me, this is where the plan falls apart and highlights the flaw in the BBC logic – they are building a service to compete with another almost-free service, where their services are already available on and in an area they have no economic or technical advantages. Surely, the better solution would be somehow to get Sky to sign an agreement to continue their FreeSat service and make sure the consumer is not ripped-off for set-top box or installation services.

And this I believe is the true “non-publicised” reason for the BBC wanting a FreeSat platform is that they believe they are being ripped off by Sky for its EPG and platform. These amount to in the current rate card (pdf file):
  • BBC News 24 - £623,485
  • BBC1 - £3,947,600
  • BBC2 - £1,364,895
  • BBC3 - £981,395
  • BBC4 - £349,080
  • CBBC - £297,205
  • Cbeebies - £743,400
  • Total - £8,307,060 per annum
The important facts here are that if the BBC launch their own platform they will still be due to pay the Sky platform charges and more importantly that the Sky charges are in fact a REGULATED charge (by OFCOM) and not something that Sky can dream up out of thin air.

The other area where I think that the BBC costs could run away on this platform is the relentless cross-promotion that the BBC usually run for its services on its advertising free broadcasting channels. BSkyB have expressed their worry about this in their reply to the BBC Trust, however I feel it is something that will be impossible to control or stop.

In summary, I am really struggling to understand why the BBC feel the need to launch a FreeSat apart from the fact that they don’t like Sky platform charges and would like a HD option – neither of which were mentioned in the BBC Trust documents. I also strongly feel that the FreeSat platform is getting approval to proceed with only half the rationale out in the public domain. This is the worst of starts to the BBC Trust reign of trying to control the scope creep of the BBC and an extremely worrying sign for the future.