Catching Up to the Growing Digital Television Market

By Mike De Vere

The significant penetration of digital TV in the U.K. has had a profound effect on the infomercial landscape, allowing even small stations to make a reasonable income from the sale of their three hours of shopping time. The market for infomercials and home shopping is now largest in Europe and continues to grow. In 2005, there were in excess of 70 channels selling long-form airtime. Furthermore, the relatively low entry cost into the market has provided a boost to "local" advertisers who create U.K. shows specifically to run in the U.K. market.

The U.K. market contrasts sharply with that of France, which is totally dominated by home shopping distributors owned by the national TV stations (e.g., HSS owned by M6). Here infomercials are extremely difficult to buy on either a short-term or long-term basis.

CURRENT POTENTIAL AND COSTS
The cost of 30-minute blocks ranges from around ¬20 on the smaller regional stations in, say the U.K. or Germany, to as much as ¬10,000 per 30 minutes for national TV in Germany.

In terms of testing the media cost of establishing a representative long-form campaign for internationally sourced shows varies by country.

Within the U.K., the test options are restricted to non-terrestrial cable and satellite stations covering up to 55 percent of the U.K. market. However, competition is fierce amongst the channels and costs are relatively low due to the plethora of competition. It would be, therefore, realistic to produce a representative test for as little as ¬10,000. As the advertising is usually bought in monthly blocks, this level of budget would buy one month of airtime across a range of channels and then allow an advertiser to roll the campaign out with confidence knowing that the results would meet the pre-agreed criteria.

Holland and Germany offer flexibility marginally inferior to that available in the U.K., with greater costs due to the fact that much of the airtime is national. Again, test airtime is generally bought in blocks of a month and because advertising would be run on stations covering anything up to 99 percent of the available population, unit costs for the shows are significantly greater than that of the U.K. However, to achieve a representative test potential advertisers should allow for budgets of ¬30,000 and ¬50,000 for Holland and Germany, respectively. Other European markets have a range of opportunities ranging from national to regional stations and now stations broadcasting on the digital format.

Advertisers considering launching into the European market should be aware that it takes a little more time to ramp media up due to the more restricted nature of the European market. However, it would not be unrealistic to believe that a successful product could quickly achieve monthly levels of advertising expenditure in excess of ¬1 million with a longer-term objective to achieve budgets of ¬2 million.

FOLLOWING THE U.K.'S LEAD
The U.K.'s growing digital landscape is likely to set the precedent for Europe, and the rapid introduction of digital television will transform the European media market for infomercial buyers.

Until fairly recently, there were few opportunities for long-form DRTV advertisers within the U.K. The onset of digital has enabled the rapid expansion of the infomercial market due to the increasing number of channels and falling media costs.

According to recent government data, the U.K. leads the world in digital television. Since the service was first launched in 1998, more than half of all U.K. homes have secured access to digital television. In areas where there is a choice between free-to-view and pay digital TV, take-up is around 60 percent. Other countries across Europe are following the U.K.'s lead. Presently, Germany's level of digital penetration is approximately 10 percent. In 2003, Berlin-Brandenburg, Germany became the world's first region to switch off its analog signal.

Of the 170,000 households that depended upon analog broadcasting, only 20,000 failed to purchase the set-top boxes required to decode the digital format for analog televisions. The introduction of digital caused very little disruption--approximately 10 percent of German television viewers rely on a traditional terrestrial antenna for reception, the majority are already familiar with digital broadcasting.

The success of this switchover has set a precedent for other regional states, and Germany will be fully digitized by 2010. It is anticipated that cable TV will continue to be the leading method of distribution in the market, and it should achieve a market share of 60.3 percent by 2008.

Italy plans to terminate its analog signal by the end of 2006. The rate of take-up of digital television is currently one of the highest in Europe. In Italy, only a small percentage of TV households receive TV programs via cable, but these households are digital, as there is no analog cable available in Italy. The most important means of digital distribution for digital TV is satellite: 2.5 million households subscribe to a satellite pay TV platform. Another 2.4 million are estimated to have pirate free-to-air decoders.

Berlusconi's Mediaset launched Italy's only digital terrestrial platform at the beginning of 2004. It includes 23 channels, such as RAI and La7.

Approximately 85 percent of homes have analog and 15 percent have digital. Digital can be viewed via the following paths:

• Satellite - 25-percent penetration. Sky used digital satellite, and has a penetration of circa 15 percent with 3 million subscribers.
• Fibre-optic cable - 3-percent penetration. Available in the larger urban centers only.
• ADSL - Approximately 19-percent penetration with 4 million users. This is transmitted via telephone lines.
• Digital terrestrial - 800,000 homes (4 percent) currently access this service using the Free to Air decoder box. By 2009, it has been forecast that these decoders will have a penetration of 37 percent.

Sweden plans to switch off analog in 2008. Its current digital uptake is 25 percent and rising. Finland intends to do the same for 2007.

Just as the U.S. plans to terminate its analog signal in 2007, Europe, as a whole, intends to make the complete digital switchover by 2015. The U.K.'s Office of Communications (OFCOM) expects digital take-up to continue its growth strongly over the next two years. Their projections suggest that digital take-up will level off at around 80 percent of households before European legislation enforces digital throughout all homes.

GROWTH POTENTIAL
The next few years will see dramatic changes to the European market caused by the rapid growth of digital TV. This is going to lower broadcast costs, increase the number of available channels, further splinter the TV audience and prompt a surge of long-form availability.

This obviously is going to help Europe catch up with the States in terms of the creation of a flexible and dynamic long-form TV market. It does not, however, stop there. Digital TV also creates numerous other opportunities, including the introduction of interactive TV. Also, lower broadcast costs enable companies to make the launch of their own TV channel a realistic proposition. It is now possible to launch dedicated channels in Europe for under ¬500,000 per annum excluding the cost of content.

Mike De Vere is CEO for 2B on TV Ltd., a DRTV company based in London. He can be reached at +44 (0) 20 7351 0700, or via e-mail at mike@2bontv.com.