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Selling digital television

Most marketing directors in entertainment companies feel they are seen as fluff, responsible only for making ‘cool stuff’

Viewers and customers are important, but the Number One priority is advertisers

Some channels, they get so desperate for income and open the doors for anything, and then they wonder why advertisers don’t come back

Ed Sullivan

It has been estimated that by 2003 there may be a five-fold increase in the number of digital channels available. If one includes web-cast services, the number could be measured in the tens of thousands. The perennial question asked by television marketing executives is: ‘How do I differentiate my channel from my competitors?’ The answers are complex and varied.

Ed Sullivan, co-founder and president of Pittard Sullivan, is probably the world’s leading marketing communications outfit in the entertainment industry. He advises:

In my experience rarely is there an overall [marketing] plan. Our first step is to make that communication activity start inside the company through all the various presidents, vice-presidents and senior departmental staff. It’s an organizational process at first. Then it becomes a tactical execution process further down the road.

Some channels have an easier time of it, in particular any niche channel that is clearly defined by its output and audience. For example, Sullivan said it’s easy for MTV: ‘A new employee on Day One will know exactly what MTV is all about. But someone joining Sky One, or TF-1 or RTL, will have a difficult time because they’re the “department store ” of TV, offering a bit of everything.’ Sullivan says these ‘general entertainment’ channels, often with an audience for Oprah as well as a ‘cops’ show face immense challenges. ‘There are exceptions, and maybe the cops show is delivering the exact demographic you want and that might become your strategy, but it’s a tough one to sell to advertisers. How are you going to migrate the female audience for Oprah into cops? It’s tough.’

Ed Sullivan is uncompromising in who he wants stations to attract:

Viewers and customers are important, but the Number One priority is advertisers. I don’t care what anyone says but that’s where the money is at. It’s also vital that the advertiser is ‘on side’, besides they will be conducting the exact same process for their brand. Talk to them in terms of your own brand strategy, positioning and demographic targets, because they’ll understand all that. It will fit with their own objectives, and in my experience, result in them buying a lot of what you’ve got, and stations should quit trying to be everything for everybody.

Pittard Sullivan is working with many of Europe’s leading broadcasters, and in particular with Thomas Kirch and Pro Sieben MediaAG. ‘Pro7 came to us and said they wanted to be seen as more than just a movie service. They already had young demographics in the 18–25 range, and they wanted to widen that envelope to the 18–49 age range, which is the hottest advertising target.’

Pro7 place a great deal of importance in outdoor events. Ed Sullivan states:

Persuading stations to invest heavily in an outdoor event is a challenge. First one needs to know how influential the people are at such an event. There is no such thing today as mass communications. Mass communications equals mass inefficiencies, and 100 000 influential people are worth far more than one million where the bulk of them are not influential.

Cartoon Network is a station that should have no problem identifying its audience, or its audience with it. But that’s not always the case, according to Cartoon’s Nicky Parkinson, VP-marketing. ‘In Italy, for example, we are positioned as a kids’ network, but in Holland we have a huge following among 14-18-year-olds.’

Parkinson says Cartoon Network invests heavily in non-traditional marketing, and that outdoor activity allows people to ‘touch’ the brand.

The more people can experience some element of the brand directly, the greater the chance of success. But you have to weigh up the cost of exposure to the quality of that exposure. We can promote a brand on air very effectively to our existing audience, but taking an event outside reinforces viewer loyalty because we are giving the public another way of experiencing our brand. They want the product, the brand to play a more important part in their lives.

Parkinson also says that an important part of the marketing mix is what she calls ‘the goodies’. ‘Our premiums, the brand-heavy merchandise, all help our message. But it is no more or less targeted than – say – posters. You might still get massive wastage, but it depends on what those marketing objectives are.’

Parkinson had another aspect to consider: ‘In our European markets the challenge is often more about driving distribution, and supporting the platform. The advantage of events is that they’re often a place where our distributor can also get a benefit.’

Cartoon Network’s ‘goodies’ are vital, but it is also important to get the overall marketing strategy sold to every member of a station’s staff, says Ed Sullivan: ‘The problems for most marketing directors in entertainment companies is they feel they are seen as fluff, responsible only for making “cool stuff”, and bosses want them only to make more “cool stuff” and most marketing directors know damn well that’s not it at all.’

‘Strategy is all important’

Sullivan says strategy is all-important, and should be a top priority, with marketing driving everything else the station does: buying programmes, making presentations to ad-buyers, having roadshows and deciding which media to focus on.

Most often they need someone to come in from the outside to help them focus on this, or else they risk being drowned out by twenty other voices around a board-room table. It’s hard, because most people expect the marketing head to talk about marketing, but often we find that general entertainment channels and sometimes also niche services are out there buying programming without a strategy behind it. They are buying for ratings, sometimes with little idea as to overall strategy.

The challenge for Pittard Sullivan at BSkyB was to turn what Ed Sullivan saw as a broadcasting ‘sports star’ into an all-round entertainment star. Pittard Sullivan completed Sky’s new identity this summer, ready for its digital launch, and Elisabeth Murdoch was reportedly well pleased. ‘In a multichannel environment, especially in niche programming, it is important to have a clear relationship with your audience,’ she says. ‘You have to remind people of the emotional value they are getting out of the service.’

Emotion is also running high at ZDTV, a new technology channel from the Ziff-Davies publishing empire which in barely 90 days (it launched 11 May 1999) reached hard distribution in 6 million US homes, and access to another 25 million. Its niche is clear, yet it has to try even harder in today’s overcrowded marketplace. Tom Grams, ZDTV’s head of world-wide sales: ‘Satellite and cable love us because it gives them another genre of programming to offer, that doesn’t exist anywhere else.’ ZDTV is running a consumer campaign but wants to catch what Grams calls ‘that wave of increased collective consciousness where the Internet is concerned’.

One of the ways ZDTV maintained contact with its viewers, and also created a unique point of content with its viewers, was to deliver around 1000 web ‘net-cameras’, which allows viewers to call in direct to the station as reporters, via their PCs, telling ZDTV what is happening in their neck of the woods. Grams says: ‘The net-cams are simply wonderful. It’s also a great form of promotion, in fact only days ago we had a TV executive in Australia call us up after he’d seen some of our web-streamed programming and said “Send me your show-reels; I am interested in taking your stuff”.’

‘Cool, upscale…’

There can still be problems, according to Ed Sullivan:

In the US, in Germany and the UK, if you’ve a young channel, skewing 18–34 year-olds, young people who are cool, upscale and aspirational, then you’re not going to have much success selling Mercedes 600 series autos. Yet you can see this sort of ad appear, and the station must wonder if their advertiser has misunderstood the audience. Better to be promoting a smaller, hipper model like the 300. Mercedes are smart, they don’t tie Rap music into their 600 series, but they could, on the right channel, with a 300. So it’s also matching the channel to fit with the advertisers and then there’s no stopping the income, if you can deliver on that. Indeed, more often than not, advertisers will help deliver that audience for you.

Sullivan had clear advice on where to start rebuilding efforts, especially when faced with seven days of schedules:

If channels can get it right, if only on two nights a week, then they should focus on that, building up from that solid base. On the viewer side the channel has to focus on viewers, too. Rolling out the consistent message to viewers, production companies and everyone involved in the creative process. Remember, your advertisers are your viewers, your viewers are your production companies, and the production companies your advertisers. You have a very influential medium with a huge word of mouth.

‘Word of mouth’ can almost work miracles, especially amongst youngsters, but stations have to be careful to tailor campaigns to suit the local market. Cartoon Network deploys its furry characters as often as possible, but Nicky Parkinson warns about misjudging the market: ‘There’s the degree of “cuteness” in the market. For example, the furry characters we send out are hugely popular in Spain, France and Italy, but British kids are a bit more cynical about them. In India and the Middle East those self-same characters generated a enormous response with pictures in the national press.’

Asked how successfully campaigns transfer from one market to another, Parkinson said,

In general anything that is a good idea IS a good idea. But there can be difficulties. For example, in the US we have ‘dive in theatre’ where Cartoon Network takes over an outdoor pool and the kids sit around in rubber rings and watch cartoons, eating ice-cream. We product-sampled our new cartoons, including Dexter’s Lab, and it was a terrific concept. But for Europe, and especially Britain with our fickle weather, it’s more of a problem. We had thought of indoor pools, but it doesn’t seem to have the same appeal.

Cartoon Network, like MTV or Fox Kids, or even CNN, has a clear idea of its audience and its corporate mission statement would beeasily understood by viewers and advertisers alike. But there’s one group which is often forgotten – a station’s own employees. The message has to be sold to them just as competently. Sullivan comments:

Most people who just get a pay check every Friday or each month, they find it difficult to relate to a goal like ‘we want to increase our rating by 2.5 per cent share this year’, or ‘we want to put DM300 m more in the bank this year’. They ask us ‘How do we do that?’ and it’s great going into a management meeting and discussing something that is not expressed in vague mission statements but in highly specific marketing goals.

Sullivan says the station should set out to achieve this at every opportunity.

We do it in our voice, our style, our feel, who we are, how we are going to position this property and how are we uniquely competitive in this marketplace with the assets we have. Everything starts – and it is sometimes eye-opening to senior staff who sometimes have a financial background – with this strategy. People need to know the ‘why’ as well as the ‘how to’. If you want to use that most overused ‘B’ word, of brand marketing, it’s really about become focused on what it means to clients, advertisers, other production companies supplying you, as well as staff and then viewers.

Getting a single channel talked about is hard enough, so what are the challenges that face broadcasters with a bouquet of channels to package and market? Some broadcasting organizations have had difficulties selling their new digital products to viewers, and the past five years have seen clear examples of failed, or failing, products that prove that very real challenges exist:

• Leo Kirch’s DF-1 all-digital platform was re-launched (having absorbed the rival and more successful Premiere platform) as Premiere World in September 1999;
• PrimeStar, AlphaStar and USSB, three American outfits have either failed or been bought out by more successful rivals;
• ART, Orbit/Star Select and Showtime. Four Middle East-based digital platforms, all still exist but with reported massive losses, and in ART and Orbit’s cases little likelihood of repaying their investment to their owners;
• Australia’s digital experience has been far from successful with millions in losses;
• Italy’s experience in digital has been a near-disaster to date;
• in France, AB Sat, which launched as a stand-alone platform, is now little more than a channel provider to the two larger platforms;
• Spain’s Via Digital, despite have the active backing of the public broadcaster is struggling to stay afloat.

There are plenty of other examples where pioneers have lost their investors millions. So what is it about digital television that distinguishes it from other electronic service offers to the consumer? There is unfortunately no easy answer to this deceptively simple question. We know there are some key elements that ought to make the sales proposition fairly straightforward:

• programme choices
• instant ordering of PPV services
• interactive or transactional services
• improved picture or sound quality.

Most digital television operators concentrate their marketing message in one or more of these areas. However, the ‘mix’ will be determined by a complex of different factors, the most important of which are the nature of the competition from rival platforms and – where they already own subscribers – the avoidance of ‘cannibalization’.

BSkyB’s digital satellite package in the UK provides a good example of the potential dilemmas faced by broadcasters marketing digital television. At the end of 1997 BSkyB had around 6.5 million subscribers in the UK and Eire on analogue DTH and cable, a lucrative franchise which it could ill-afford to abandon. Inlate 1997 BSkyB’s chief executive Mark Booth was reported as believing that BSkyB’s analogue subscribers fall into two main groups, and that they are representative of most broadcasters’ main target audience: sport-loving males; and females and children, which Booth said BSkyB had neglected.

At the time it seemed Booth’s comments suggested that BSkyB’s strategy was initially to market digital television to its existing premium subscribers (film and sports enthusiasts); this would be done by emphasizing the appeal of NVOD movies and PPV sports, offers that may be expected to immediately appeal to this group.

BSkyB’s second thrust would be to compensate for any loss of premium-channel revenues through cannibalization by expanding the remaining group of analogue subscribers – through emphasizing the attractions of the BSkyB 30-channel basic package at £11.99 per month.

In terms of differentiating its offering from digital cable and digital terrestrial, BSkyB has competitive advantages in each sector: it has exclusive sports to which cable does not have access (and which cable will have to buy wholesale from BSkyB); and it can legitimately argue that its analogue multi-channel package is cheaper to install, cheaper to subscribe to, and offers wider programming choice than digital terrestrial. These factors figured prominently in their subsequent marketing campaigns.

In addition to such competitive considerations, there are also national, cultural factors to be taken into account. In Italy, a country that is more obsessed with football than almost any other European nation, it was natural for Telepiu’s digital service to seize on the idea of pay-per-view football matches as the principal consumer driver for its service. Indeed, this perception directly motivated the company’s decision to acquire exclusive soccer rights.

In fact, pay-per-view has little or nothing to do with digital television as such, as PPV sports events can be offered on an analogue service (indeed, BSkyB has already done so). In the UK, meanwhile, the BDB digital terrestrial television consortium backed byCarlton and Granada TV appears (as at mid-1999) to be basing its hopes partly on the potential appeal of drama, on the basis that the most popular programmes on UK television are soaps. Another example can be found in the USA, where DirecTV has actively exploited widespread resentment of cable pricing in order to promote its impulse PPV movie facility.

Generally speaking, outside the USA digital marketers may be wise not to dwell too much on the technology itself, despite the obvious attractions of doing so. As mentioned before, the mass market does not generally buy technology; it buys applications.

An interesting illustration of this phenomenon is provided by the fate of Philip’s CD-I format, which attempted to turn the domestic television set into a focus for interactive multimedia in the home. CD-I’s problem, essentially, was that it was a technology in search of a Unique Selling Proposition (USP): CD-I players could play audio CDs, films and games and could in principle be used to provide an interactive overlay to television programmes or to order items from a home shopping catalogue on disk when linked to a modem. Consumers, however, were confused by the idea of a convergent, interactive, multimedia platform, and the format is now all but defunct. Significantly, it has had some success in niche sectors, such as karaoke or professional training, where its ability to deliver an improvement with respect to a single application was emphasized.

Moreover, there are particular dangers associated with promoting technology-driven applications that may be difficult to deliver in practice. The most notorious case in recent memory was the Apple Newton, a hand-held personal digital assistant (PDA) which incorporated handwriting recognition software that purported to be able to decipher notes written on its touchpad with a small ‘pen’. Put simply, the software didn’t work. Newtons became the subject of consumer ridicule, and even though Apple subsequently changed the marketing focus to that of a general communications tool, and solved many of the technological problems, later versions never proved successful. The Newton saga soured the whole market for PDAs for a number of years, and early in 1998, Apple dropped the product-line.

The most tempting application to focus on in the case of digital television is the ‘home cinema’ experience. In theory, MPEG-2 is capable of delivering a high-quality, wide-screen (16:9) image with CD-quality surround sound. In practice, such is the quality of PAL and SECAM that, outside the USA, the quality improvement over analogue transmissions may be indiscernible; indeed, the quality could actually be worse. Moreover, except in those small (but growing) number of homes with wide-screen television sets and surround-sound equipment, much of this allegedly cinema-like experience will be unavailable (and most television set loud- speakers are not capable of reproducing sound to the level of fidelity present in the MPEG-2 transmission).

Hence, while the promotion to the consumer of such ‘technology quality’ aspects of digital television might well induce them to buy, the consumer may be disappointed. This may not matter if, after purchase, the consumer finds other potential benefits of digital television to be attractive (for instance, extended programme choice). However, the risk of an Apple Newton scenario cannot be completely discounted, and adopting such a strategy is clearly not without risk.

A marketing strategy based on other technology-led applications, such as impulse ordering and interactive or transactional services, should also be treated warily. Impulse ordering is a concept with which few outside the USA are familiar. It may prove more successful to downplay the impulse-ordering facility and simply tell consumers that they are able to view the movie they want, when they want it, at the touch of a button. (Even then, care needs to be taken not to over-emphasize the immediacy or range of the available experience, as the best any digital television service can offer to date is 15-minute start-times, and this generally only covers the top 20 or so titles.) For sports pay-per-view, again the point is not the technology; it is the ability to watch one particular game from within a range of simultaneous choices.

A similar caution must be expressed about interactive and transactional services. The one-way point-to-multipoint infrastructures used by most digital television operators will prevent them from offering advanced interactive services for the foreseeable future,and the provision of ‘turbo-Internet’ access, in particular, is fraught with danger, as the experience of DirecPC (DirecTV’s Internet access service) has demonstrated. DirecPC’s customers have complained that they are frequently unable to access the Internet at the advertised speeds (400 Kbps in the case of the fastest package), with some claiming access speeds are on occasion around a tenth of what they thought they were purchasing. Even though the technology may eventually be fixed, the initial word-of-mouth damage is often enough to condemn a perfectly decent product to the technological scrap-heap.

Transactional services such as home shopping require an extensive and effective fulfilment infrastructure to ensure that the right product at the right price reaches the right purchaser at the right time. It only takes one delivery going wrong for consumers new to this type of experience (and not everyone is used to shopping from catalogues) to decide not to use the service again.

Marketers have to be very certain that the new digital technology can deliver what they promise before they choose to promote their digital television offering on the basis of technology-dependent applications. The implication is that digital television operators should, rather, concentrate on the relatively low-risk strategy of emphasizing programme exclusivity and range. Here broadcasters know what programming rights they have and should be reasonably certain they can deliver. No-one can dispute that they are able to offer a greater choice of channels than are available on analogue systems, nor, where they have spent large sums on acquiring exclusive film and sports rights, that they have programming to show which is unavailable elsewhere.

This is certainly the approach adopted by Canal+, which gained over 850 000 subscribers to its digital satellite service after less than two years in operation. Although it possesses what is one of the most technologically sophisticated digital television packages in the world, its technical director, Henri Joubaud, in August 1999 explained that Canal+ chose to adopt what he described as a ‘broadcasters’ approach’ for its digital platform. ‘The prime concern,’ he stated ‘was to come up with a strong programming mix offering real choice and diversity from day one’.

On balance, digital television’s ‘unique selling proposition’ (USP) must relate to television: more of it, packaged and made available in different ways, rather than any advanced applications, otherwise there is a substantial risk of incurring consumer disappointment.

There is, it should be noted, a countervailing argument to this proposition, based on the fact that the consumer market is segmented into a number of different categories, some of which are technophiles who will buy new products just because they are new. According to this line of reasoning, this segment of the population is much less sensitive to technological under-performance. Traditionally, one can divide electronic product purchasers into five groups.

• Innovators: keen to experiment and untroubled by perceptions of risk, they often act as trend-setters (in well-accepted studies they make up 2.5 per cent of the eventual total of purchasers).
• Early adopters: not as impulsive as innovators, they are often opinion leaders (13.5 per cent of the eventual total of purchasers).
• Early majority: cautious buyers who take time to make up their mind, they may be influenced by early adopters (34.0 per cent of the eventual total of purchasers).
• Late majority: sceptical about new products, they will only purchase when they perceive there is general acceptance of a particular product innovation by the rest of the population (34.0 per cent of the eventual total of purchasers).
• Laggards: suspicious of anything new, they are traditionalists who oppose new products on principle (16.0 per cent of the eventual total of purchasers).

A historical analysis of take-up rates for launches of new consumer electronics, such as colour television and VCR, shows that, although the categories overlap somewhat, it takes around three years for the innovators to be ‘converted’, around five or six for the early adopters, around 10 years for the early majority, and around 15 years for the late majority and laggards.

If this analysis can be applied to digital television (which is far from certain, as the accelerating pace of technological change may have compressed this sequence), it suggests that the risk of emphasizing technology-driven aspects of digital television in the early years of its introduction may not be quite as acute as has been suggested above, since it is mainly the innovators who are making the purchase. By the time early adopters and the early majority come to invest, many of the technological wrinkles will have been ironed out. However, the crucial group is the early adopters, who are opinion-formers. If they are disappointed, their disappointment is likely to ‘cascade’ through the population, which is exactly what happened with the Apple Newton.

Tier system

In the analogue domain, pay-TV packages have traditionally been structured into two tiers: basic and premium. Access to the premium tier was only possible if the subscriber was already paying for the basic tier. There were sound business reasons for this practice: premium programming, such as exclusive films and sports, is much more expensive for the operator to buy than the general entertainment or re-transmitted terrestrial channels that make up most basic offerings, which are often made available on a nonexclusive basis. The margin on premium programming is therefore generally much lower, if not actually loss-making. Because of the relative cheapness to the operator of the content of the basic tier, therefore, such tiers are potentially much more profitable. The problem is that the content in the basic tier is not particularly attractive to consumers; they can frequently obtain it (or some of it) from another source.

The solution reached was to entice consumers to subscribe by emphasizing the attractions of the premium programming, but force them to ‘buy through’ basic in order to get it. Basic tiers, in general, were charged at more than they cost the operator, and premium tiers at less, usually being positioned as an ‘increment’ on top of the basic price. This meant that, paradoxically, pay-TV operators have tended to make most of their money on basic.

The tiered buy-through model is of benefit to the programme supplier, too. If every one of a platform operator’s subscribers takes the programming in the basic tier, then the supplier of a basic tier channel knows what its reach is: and can sell this reach on to advertisers. This provides a much clearer basis for negotiations than a situation in which both sides have to guess what the take-up of a new channel might be.

Despite these advantages, the classical two-tier structure has been undergoing a metamorphosis in recent years, as pay-TV operators seek to expand penetration to wider reaches of the population (in terms of the demographic model outlined on page 187) by encompassing the ‘early majority’ and ‘late majority’ segments. This has led to the introduction of lower-priced ‘mini-basic’ tiers, to ‘thematic’ tiers, and to ‘big basic’ and ‘extended basic’ tiers. The thinking is that by offering a greater and more flexible variety of packages, consumers who are put off, either by the price or by having to purchase ‘bundles’ of channels, many of which they are not interested in, will be more prepared to subscribe.

A mature example of this development at work is DirecTV’s complex subscription offering, which allows the service to be configured in many different ways for many different prices. Currently, the greatest degree of experimentation in this area is taking place within the UK cable market, where penetration levels have remained stubbornly low, generally at below 30 per cent.

UK cable’s pricing structure is representative of what the industry generally tends to provide. There is usually a low-priced tier, together with a set of thematic tiers. Would-be cable subscribers might get a mini (or sub-) basic tier which, in addition to telephone rental, offers the terrestrial channels plus at most five or six channels as an entry level. Subscribers can then choose from any three or four thematic packages for an additional payment and then add any of Sky’s premium film and sports channels as they see fit.

If it is true that the more flexibility the operator allows the consumer, the more that market penetration can be extended, then, in theory, the more revenue can be obtained. However, evenif there is a net effect on penetration levels, the net effect on revenues remains in question. Just as new subscribers can be attracted by low entry-levels, existing subscribers may be enticed to trade down to obtain only those channels they want. The net effect, then, could be neutral or possibly even negative.

Taken to its logical conclusion, the ‘flexible’ multi-tier model eventually turns into the ‘à la carte’ model.

‘Á la carte’ model

At the other end of the marketing spectrum from the tiered system is the ‘à la carte’ model. Although it exists on some modern analogue cable systems, it is much rarer in territories with mature, low-capacity networks. The idea inherent in ‘à la carte’ is that the viewer is free to choose any mix of basic and premium channels required, and is charged accordingly. This concept extends into pay-per-view, where the viewer chooses and pays for individual programmes rather than channels, and has its ultimate expression in the video-on-demand concept, where, effectively, there is really no such thing as a channel at all.

One reason why à la carte offerings have been held back is a technological one. In many cable systems, the ‘basic’ offering is transmitted ‘in the clear’ down the cable system to the home: the set-top-box supplied to the cable subscriber as part of his subscription simply ‘converts’ the signals from the cable frequency to the one used by the television set (one reason why cable settop boxes are still often referred to as ‘converters’). The premium channels are the only ones that are scrambled. For true à la carte facilities to be offered, every channel would need to be scrambled, and the software in the home and at the cable head-end would jointly have to be capable of unscrambling only those channels that the subscriber had requested. This entails a set-up termed ‘addressability’: the ability of the service-provider to identify a particular box at the other end of the cable network, and configure its service accordingly.

Á la carte causes other complications from a business point of view. First, from the point of view of the pay-TV operator, billingis much more complicated and requires much more sophisticated back-office software. Second, and rather more significantly, a true à la carte offering disables ‘buy-through’. If a subscriber is free to take any mix of channels desired, he or she can elect just to take the premium channels (and therefore, for the operator, the less profitable ones), reducing the pay-TV operator’s margins.

The à la carte model is arguably problematic for the channel provider, too. First, it involves increased risk. At the point where a deal is being negotiated with a pay-TV operator, the channel provider cannot know in advance precisely how many subscribers will be opting to take his service. He thus has to take an educated guess, based on his own knowledge and what the pay-TV operator tells him, as to what the likely subscription and advertising revenue potential will be, and negotiate a price on that basis. When negotiating for inclusion in the basic tier, matters are much more straightforward.

When the time comes for re-negotiation, however, the problem becomes transparency, rather than opacity. By then, each side will know exactly how many subscribers chose to include the channel in their à la carte choice. This knowledge is much more difficult to obtain when a channel is sold into basic, since the only gauge of viewing preferences within the basic tier is audience research, which is often inaccurate for small niche channels, and sometimes inapplicable (where a channel provider cannot afford to pay to be included in the television research panel).

While transparency is an advantage for channels which are popular, giving them increased leverage in contract negotiations, it disadvantages minority ones, and may even make them economically unviable. In a tiered system, basic channels not only subsidize the premium ones, but also each other: the strong channels carry the weak ones. In an à la carte system, weak performance is exposed, and the tendency is for revenue to flow away from the least popular channels towards the most popular ones. In a way, à la carte – a system whose flexibility seems to work entirely in the consumer’s favour – could be seen as undermining the very diversity of choice that might make a consumer opt for a digital multi-channel offering in the first place.

Pay-per-view, and true on-demand television, take this tendency to its logical conclusion. An example of the phenomenon at work is provided by the experience of pay-per-view football in Italy. According to Telepiu, the three top clubs (Juventus, Internazionale and AC Milan) were responsible for around 80 per cent of the subscriptions to its Telecalcio pay-per-view package (Financial Times, 10 March 1997). This package offers a season ticket to the away matches of Serie A and B teams to those living within the team’s home area, and the entire schedule to those living elsewhere.

The economic risks of such a system were highlighted when Telepiu’s marketing boss at the time said the number of people paying to view some of the less important matches meant ‘it would have been cheaper for us to take them individually by helicopter to ground to watch the match’.

Economic logic would dictate (and some of the top clubs have been implying) that the lion’s share of the money that Telepiu pays in rights to Italian football should go to the three top teams, and that those clubs with few or no subscribers should not have any of their games broadcast on Telecalcio. In the words of Luigi Predeval, general manager of FC Internazionale, speaking at a time when the revenue concentration effect was not quite so marked, ‘Inter, Juventus and AC Milan fans provide 64 per cent of subscriptions for pay-per-view but don’t get 64 per cent of viewing rights’ (Financial Times, 23 November 1996).

Contrast this with the situation that existed before, where every subscriber to the Telepiu football channel would have been able to see every match shown, whether involving the top clubs or the lesser ones. In such a situation, soccer fans end up watching club matches they might not opt to watch in a ‘free-choice’ environment, simply because ‘that’s what’s on’. It is arguable that in such an ‘opaque’ environment, pay-TV sports rights will actually be worth more overall to the clubs than they will be in a ‘transparent’ pay-per-view one.

Despite these difficulties, there is no doubt that the trend is currently away from rigid tiers towards a much more fluid situation,with à la carte facilities, including pay-per-view, being offered alongside tiers. Digital television offers a strong imperative for this, since as channel choice multiplies and the potential for ever more complex tiering arrangements increases, the digital offerings will become increasingly confusing to new entrants, and increasingly difficult to market. The advent of the Electronic Programme Guide (see below), which forces programme-based rather than channel-based choices on viewers, will also help to speed this trend, but regulatory pressure will do more to promote this development than anything else. Athough this issue is dealt with at greater length in Chapter 9, the impulse for this pressure comes from the fact that regulators, rightly or wrongly, regard it as ‘unfair’ for consumers to be forced to purchase channels they do not want to watch. A recent statement from the UK’s Independent Television Commission (Independent Television Commission, 1998) epitomizes this approach. Concluding that ‘channel bundling’ in the retail pay-TV market entailed a number of anti-competitive practices, it proposed:

• the prohibition of minimum carriage requirements and tiering obligations by programme providers, which, it stated, would enable satellite and cable operators to offer basic channels either à la carte, or in mini-basic or ‘big basic’ packages;
• a measure allowing consumers to buy through to premium channels from any basic package;
• making bundling of more than one premium channel (excluding bonus channels) permissible only where the channels were also available à la carte.

All of the above regulatory measures would impose greater tiering and à la carte flexibility on pay-TV operators, whether they wanted it or not. In the UK, this measure would prevent BSkyB’s digital service from offering NVOD only to premium film channel subscribers; BSkyB would have to offer the facility to any basic subscriber. In other territories where pay-per-view is available, this has now become accepted practice, whether for regulatory reasons or otherwise. This development has significant implications for the continued viability of premium programming tiers. Consumers,particularly those with low video consumption habits, may be reluctant to pay for a movie channel when they can purchase occasional films on a one-off basis. With sports, meanwhile, the ability to show a live event and make people pay for it implies that that same event has to be withdrawn from the schedules of the premium sports channel – or at least shown at a later time.

Channel or service branding

It is axiomatic that, as the number of television channels increases, it becomes successively more and more difficult for each additional channel to establish its ‘share of voice’ or ‘shelf space’. The web provides a ready illustration of this phenomenon: faced with a near-infinite number of sites to access, Internet users navigate in three principal ways:

• they instantly ‘jump’ to sites with which they are already familiar;
• they use a navigation service;
• they start with the default site set on their browser.

One of the reasons UK digital television operators such as BSkyB and ONdigital have been courting the BBC is precisely because it has one of the world’s best-recognized programming brands. In an environment where much of the programming is characterized by low production values and where programme costs are being driven inexorably downwards, being able to be associated with a high-profile, high-quality programming brand is clearly an enormous advantage, and will help to drive consumer choice to the extent that it is programming-directed.

It is possible that these brands may not need to be television-related ones. In a sector where sponsorship is increasingly being used to bridge the gap between programme budgets and commissioning fees, non-TV brands such as Coca-Cola or Levi may be used to enhance recognition. Indeed, the phenomenon of ‘disintermediation’, through which product manufacturers bypass the middleman to address their preferred customers directly, suggeststhat well-recognized brands such as these are able to rise above the prevailing level of ‘noise’ in a digital universe, to a point where they may well become programme-makers themselves (regulations permitting).

As the importance of brand allows advertisers to become programmers, it is equally likely that programmers will be forced to behave more and more like advertisers. In the words of a senior executive at Discovery Networks Europe, taking a direct analogy with the supermarket, the challenge is for every channel to justify its place ‘on the shelves’. He believes that if conventional television companies are to survive, ‘they have got to stop seeing themselves as TV brands but more as brands that happen to be in the business of TV’.

It is probably also true that the advent of digital television will see the branding of individual programmes becoming more important than the branding of individual channels or broadcasters. Much depends on how electronic programme guides (EPGs) are configured. If choices are grouped by broadcaster or programmer (‘click here to choose from the BBC bouquet’), this matters less; but if grouped by theme (‘click here to go to the comedy zone’), then programme brands become much more important. In a true video-on-demand environment, ‘channels’ as such disappear altogether, and, once the consumer has chosen a genre, programme brand is everything.

The second category of the web analogy list (jumping to the navigation site) can be likened to the electronic programme guide, clearly now a ubiquitous feature of digital television platforms. Time and technology will tell whether digital set-top boxes will eventually contain a multiplicity of different electronic programme guides – one per ‘bouquet’. Should this prove to be the case, the EPG itself will not be the reason for consumers purchasing a particular digital television service. However, once the consumer decides to subscribe, it may well determine which channels he decides to tune into, or which programmes to buy. Thus, consumer awareness of the EPG, which is likely to be promoted by being associated with a particular service-provider, will becritical, as will how these EPGs are used within services to market particular choices to consumers.

The third web analogy category – the correspondence with default browser settings – is clearly akin to the case where only one electronic programme guide exists: in this case, the fight is not so much to achieve brand-recognition for the electronic programme guide, which is ‘default’, but for the channels and programmes positioned within it.

Drawing on the two latter analogy categories, the key issues for the marketer are therefore exposure and sign-posting, both of which are dealt with in the section on electronic programme guides below. At this stage it is sufficient to say that brand will become more important in determining the success of competing pay-TV packages in a digital television environment, rather than less. If the comment from Discovery Networks is correct, this would also imply that the roles of advertiser and programmer, which were formerly quite distinct, will increasingly overlap, with the dividing-line between the two becoming increasingly blurred.

Pricing

Vital to the success of digital television is the perception of value-for-money. For instance, some companies prefer the Canal+ set-top box rental model, in which the subscription includes a hidden price for the set-top box, to one involving an up-front purchase, even if the total year-one cost is actually more. When considering the price being requested for a particular option, they will weigh up what they are already paying for entertainment, and whether the extra expenditure is justified by such benefits (real or imagined) as enhanced picture and sound quality, improved programme choice, exclusivity of access to premium material, interactivity and so on.

Other broadcasters have decided to give the box away, modifying the highly successful cellular telephone business model, which assumes a low-cost of entry and subsequent annual subscription. BSkyB has adopted this model, and since May 1999has given the set-top box away ‘free’ in return for a one-year payment. Thereafter the box can be kept by the viewer. The rival ONdigital model is different, where the box is given away ‘free’, again in return for an annual payment, but must be returned if the subscription lapses. In reality, the box is loaned to the viewer and the set-top box remains an asset of the broadcaster.

Promotions

Special promotions historically have had a central role to play in encouraging the take-up of pay-TV, and this is likely to remain true in the digital television domain, especially when the entry-price remains high. During 1997–8, in response to an apparent plateauing of its analogue subscriber base, BSkyB was offering a new stereo satellite system for £49.99, a saving of around £50. This included installation, but was only available when the customer agreed to subscribe to all the Sky channels for 12 months (at that time £29.99 per month), and pay a one-off connection charge of £12. At the same time, in the USA, EchoStar was running a promotion in which, if an existing cable subscriber bought a digital satellite system before a key date and mailed in their last cable bill, the subscriber received a US$40–60 credit against their first EchoStar bill.

What generally characterizes such promotions is some sort of hardware discount in exchange for a commitment to an upfront subscription. There are parallels here with the mobile phone business, where cellular phones are effectively given away in exchange for the consumer agreeing to a lengthy contract with high billing-rates. This is, in effect, the so-called ‘Gillette’ marketing model: the razor itself is the loss-leader, with the money made on a continuing requirement for razor blades that will only fit that particular razor.

This model has been deployed to great effect in the games console business, where hardware devices which have processing-power equivalent to high-end PCs are heavily subsidized in order to tie in the buyer to proprietary, high-priced games software. The digital television industry has not yet reached the stage where theequipment is given away, but as Moore’s Law (which states that memory chip performance doubles every 18 to 24 months) and mass-production together continue to bring down the price of processing-power and memory storage, the free-of-charge business model becomes more affordable, especially with sub-US$100 set-top boxes. Giving away US$100 in order to win a subscription income of US$300–400 is good business, especially in the second and subsequent years.

The hardware give-away model should, however, not be confused with the Canal+ rental model. In the type of promotion being discussed here, the hardware belongs to the subscriber. In the Canal+ model, the pay-TV operator continues to own it. The exigencies of the rental model have compelled Canal+ to develop other forms of promotion which are not hardware-dependent.

In Spain, it has had particular success through a marketing campaign launched in September 1997, where existing subscribers to its analogue Canal+ service were offered a free subscription to the Canal Satelite digital basic tier until August 1998. According to Canal+, this led to a ‘significant increase’ in the proportion of digital subscribers, which by year-end accounted for nearly 20 per cent of its subscriber portfolio. By the end of 1997, just over half a million subscribers had signed up for the Canal Satelite digital package, 51 per cent of whom had been supplied with a digital set-top box.

In France, Belgium and Poland, Canal+ has also experienced some success with what it describes as a ‘cash-and-carry’ subscription process, in which visitors to hypermarkets or shopping centres can sign up for the service on the spot. In Belgium, this was said to have accounted for 20 per cent of new subscribers in the final months of 1997. In Poland, this was supplemented by efforts to enhance customer loyalty and improve service, such as a commitment to 24-hour set-top box delivery and the ability to sign up for subscriptions via the Internet. Canal+ says that these promotional efforts together resulted in a 45 per cent increase in Polish subscriber recruitment for 1997.

In 1999 ONdigital in the UK placed large numbers of its set-top boxes in supermarkets with a ticket price of £119 to include‘the box, and a one-year subscription’ to ONdigital’s basic tier of channels.

What is critical to the success of such promotions is their visibility. Ownership of a pre-existing mass-market window, whether on television, radio or in the press, is crucial, as is ownership of a pre-existing customer base. A large measure of BSkyB’s success in the analogue market can be traced to the fact that it was strongly cross-promoted (and continues to be in the digital era) in the News International stable of newspapers which News Corporation controls. News Corporation holds a 40 per cent stake in BSkyB.

Canal+’s success in managing the transition to digital has also been based on the existing terrestrial window it enjoys in the analogue pay-TV market, and its exclusive ownership of French pay-TV customers. The Canal+ premium channel had nearly 600 000 digital subscribers at the end of 1997, an increase of some 380 000, yet during the year the total number of Canal+ subscribers (analogue and digital) increased by only 103 000 (figures taken from Canal+ report and accounts of 1998). This suggests that most digital subscribers to the channel were former analogue subscribers, rather than new digital ones. Much the same argument applies to BSkyB, which with its digital product is clearly converting plenty of its former analogue subscribers, but not so many new entrants.

The Electronic Programme Guide (EPG)

In a digital television environment, Electronic Programme Guides (EPGs) are essential. Without an EPG, it is very difficult for broadcasters to attract viewers to their channels and almost impossible for viewers to access the channel they want to view out of the hundreds of channels available. Although the consumer’s purchase of a digital decoder is unlikely to have been driven by the navigation system, he or she will very quickly find that zapping or teletext is quite inadequate to navigate within digital packages, especially once exposed to advanced interactive services.

The EPG’s strategic role is primarily to act as the main gateway to multi-channel bouquets (packages of services). For the consumer, the EPG is the answer to the questions: ‘Where am I?’ and ‘Where should I go?’. For the service provider, the EPG is the answer to the question: ‘How do I tell them about my service?’. For the platform provider, the EPG answers the question: ‘How do I gain and keep my customers?’.

In most EPGs across the world, the design is a ‘menu-driven’ system. There is usually one main entry screen providing all the options in the full bouquet, followed by layers of sub-menu screens providing access to the option selected in the higher-level screens.

For broadcasters, bouquet and platform providers, the EPG offers a wide range of marketing opportunities. The various screens at different levels of the EPG offer ideal locations for logo, caption and corporate design, as well as marketing and promotional messages.

On each of these screens there is a marketing opportunity. The main entry screen is clearly the place that the platform provider will use most. Here is the ideal location for logo, caption, corporate colours, corporate design, fonts and symbols. Since this is the first ‘face’ of the EPG, it is also the ideal area for marketing and promotional messages. For instance, a specific area on the screen can be updated regularly with fresh and relevant messages.

As the user moves into the lower, deeper levels of the menu structure, he or she will use more service provider-related information and thus these pages or screens should not be taken up by the platform provider’s marketing messages. This space is potentially ideal for the service provider to use for its own marketing purposes. The service provider, like the platform provider, can also use the EPG screens to display logos, use its brand colours, and use allocated areas in the EPG screen for marketing and promotional messages. For example, where there is a list of channels or services to select from, the channel and service logo can be used. Once the consumer reaches the screen for that channel’s information, the background of the screen can be changed to that of the service provider’s house-style.

The area on the screen allocated for marketing and promotional messages can also be used for cross-promotion of all services offered by a service provider. For example, a service provider could choose to promote a prominent event or new service within its total product range. However, it is worth noting that the cross-promotion of different services by a service provider and the manner in which this is effected in the EPG is likely to be subject to close scrutiny by regulators in certain markets and is almost certainly going to lead to commercial disputes between different service providers and the platform provider.

Currently (2000), most EPGs carry the services of one bouquet, even though the bouquet may contain many channels. In the near future, EPGs are likely to become more and more the gateway to multiple bouquets – packages of multiple channels offered by different bouquet providers. The consumer will then be presented with a choice between different bouquets and will have to decide whether to subscribe to all or to some only, selecting his own combination. Two terms are particularly relevant to this discussion: position and positioning.

• The position of a service means the ‘ranking order’ of the service within a list of options. Positioning, therefore, means the way in which a service provider markets or promotes itself, its products or services; the brand image it projects; the qualities and concepts it is associated with; the expectations created in the market about what and who it is.
• In the case of a single bouquet, the actual position of a service or a channel is very important, since it can easily get lost among the multitude of service or channel options available.

When EPGs become the gateway to more than one bouquet, with different packages offered by different service providers, then the positioning of the bouquet becomes the important issue, since now it is the bouquet which can become lost among the other bouquet options.

In the EPG both these issues are very important to the individual service provider, since both can work favourably or unfavourably for him.

Position and positioning are also very controversial issues, not only in the EPG business but in the digital television business as a whole. It is proposed that every service, bouquet or platform provider should have an equal opportunity for promotion and receive the same amount of prominence in the EPG. However, some service, bouquet or platform providers may want to be ‘more equal than others’.

Take the case of a digital television channel. Why is its position so important? The answer is that in a multi-channel bouquet the consumer has a very wide choice, one that will grow wider over time. There is a battle for eyeballs. How can a broadcaster attract more viewers to his channel? As already argued in previous sections of this chapter, to be attracted, viewers have to know about your channel and find your brand image and service information appealing.

It is important to underline that the EPG is not used like a channel. If a channel can be compared to a destination, the EPG is the route that takes the consumer to that destination. The consumer will not spend a long time within an EPG; it will be used to make a quick decision on what to watch or as confirmation that the right choice was made. Then the consumer quickly moves out of the EPG and back to channel viewing again. The opportunity for making an impression and drawing viewers to your channel or programme are therefore limited and of short duration. First impressions are critical!

Every channel wants to be at the top of the position list when there is a selection to be made, or on a ranking position which matches their station identity: for instance, Channel 4 wants to be at position four in the list but RTL4 wants to be on position four as well. This is obviously not possible, so the EPG operator has to make a decision based on other factors: for instance, whether the preferential position should be available at a premium charge, whether channels can be rotated between preferential positions,or whether to adopt a random allocation procedure of ‘first signed up, first served’.

Should channels become treated equally in this way, it will be even more important for a channel or service to increase its prominence on the EPG screen to maximize its positioning. EPG operators will have to ensure additional marketing and promotional space on the screen is available for channels and services.

For the consumer the EPG not only leads the way to a predefined destination on a pre-planned route, but it can provide new and interesting routes with information about the path being travelled, enticing the traveller to try alternative routes and gain new experiences. In the digital television world, the use of the EPG is not only essential it is also enjoyable in its own right.

Initially a digital decoder user may be content to use the EPG to gain programme listings information. The user is then likely to take advantage of the opportunity offered to find a particular programme or channel by genre. Gradually the consumer may use the EPG in a similar way to the web by simply exploring possibilities or options as an enjoyable experience in its own right. Ultimately the EPG may be enhanced to alter fundamentally the way the consumer selects television programmes by means of user recording and scheduling.

Future developments

The EPG is likely to develop in a number of areas, which will have additional implications for the marketing of digital television and consumer benefit. The key development is a move to user behaviour recording and scheduling, whereby data representing viewer behaviour is captured and stored over a period of time and then analysed to determine whether there is a pattern or model which can be used for forecasting future viewing preferences. One absolute precondition is that the service should only be made available with the very definite consent of the viewer.

The requirements include specific software which can interface with the EPG application, a minimum definition of viewing andhousehold member identification enablement. Given the memory constraints in the decoder, the data would be sent back by means of a modem to a central database where all viewing data would be recorded and analysed. It would then be sent back, stored in the decoder and would interface with the EPG data as it is being broadcast. The on-screen application would check whether the user wished to have any recommendations ‘pushed’ at him and if so how these recommendations should be implemented: display or video-recording.

Would fluctuating human moods and preferences make it difficult to derive a statistically reliable forecast? Would the primary use be for immediate viewing or for planning future viewing? Would audience measurement agencies and the broadcasters that fund them wish to help finance such an application? Whatever the answer to such questions, there are, regulations permitting, rich marketing opportunities to be reaped from the advanced EPG. In fact, the model adopted in the UK by Open… (the interactive service backed by British Telecom and others, which markets itself as Open…, but is controlled by British Interactive Broadcasting Ltd, BIB) depends heavily on the ownership of subscriber data for marketing purposes. The idea is that Open… will sell access to its subscribers to retailers and advertisers on the basis of being able to tell them precisely which programmes they prefer, and even which advertisements they watch. This would then provide the springboard for one-to-one marketing.

The advantage for the advertiser or retailer is that they target their promotional and marketing messages very precisely. The advantage for BIB is that it is able to charge a premium for such a service, and also use such data to its own advantage, either to help it fine-tune its own programming and promotions, or to sell on additional programme-related merchandise.

An obvious example would be, for instance, where Open… knew which PPV films a particular subscriber had recently watched, so that they could market the sell-through copy of those films (or films like them) at a discount. Alternatively, BIB could alert the viewer to appropriate upcoming pay-per-view events or films andoffer discounts on these. Such promotions could be pro-active; as soon as the subscriber logged on, there could be a message flashing on the EPG screen.

Though the EPG, as the recorder of viewing choices, is theoretically an extremely powerful marketing tool, relatively few companies, even where they do own such information, make use of it particularly effectively for one-to-one marketing purposes. This is a discipline still in its infancy, as demonstrated by a survey carried out in Germany and published in March 1998. Commissioned by Gemini Consulting (a unit of Cap Gemini Group), Computer Zeitung (a German IT journal) and the University of Freiburg, the study found that only 28 per cent of companies surveyed used their own customer data to produce more targeted marketing; moreover, 55 per cent were unaware of the potential benefits such an approach could bring to their businesses. Clearly, it is one thing to own the data, quite another to know how to use them effectively.

Can the EPG help sell digital television?

Is it only after the purchase of a digital decoder that the EPG plays a marketing role? Is the EPG simply a means of enhancing the purchaser’s experience of digital television once he or she starts to use the digital decoder? In markets such as the UK, where a digital broadcaster is seeking both to upgrade its existing analogue installed base and to attract consumers who have had no experience of multichannel television, which group might be most influenced by the benefits of the EPG? These questions are more complex than they may appear at first sight and require analysis.

Consumers who have no experience of digital television are most unlikely to understand or appreciate the nature of or benefits from an EPG. Many may have experience of Teletext programme guides; those with experience of analogue multichannel television may have used full channel programme guides offered on cable systems such as Channel Guide in the UK or TV Vandaag in The Netherlands. However, these guides function simply aselectronic listings, alternatives to printed programme guides. In the digital television arena, the EPG is much more than this: it is a navigator and it is in this full functionality, as a marketing tool, and, from the consumer’s point of view, its convenience, that its power lies.

Can navigation be promoted as a potential consumer experience that could influence a consumer to purchase digital television? There are two reasons to believe this may be the case.

First, where digital decoders are offered for sale in retail outlets, the retailer will seek to differentiate this new product, not simply by using the digital broadcaster’s point of sale promotional material but also by linking digital decoders to ordinary television sets to provide a display of one or more digital television channels. The problem is that such channels are likely to appear to potential purchasers as identical to analogue television channels. One option is for the retailer to simply switch on the decoder and television set and allow the screen to show the EPG with its range of different options.

Digital broadcasters may even create a retail digital channel that demonstrates via the EPG the range and depth of the digital package. Promotional videos using the EPG as the central theme to a presentation of the appeal of the digital package could also be used. Once digital television receivers are manufactured in volume and reach the high street outlets, then apart from picture quality (always a difficult feature to convincingly demonstrate in a shop crowded with other electronic products and with television sets wired to a communal antenna) it will be the EPG that will make the most differentiating visual impression.

Second, it is clear that many purchasers of new products – excluding innovators and perhaps early adopters – often consult friends or colleagues before making a final purchase decision. With an electronic product the simplest method is to visit another household and examine the product or how it is used. Just as in the retail context, the feature of a digital television installation that is likely to make the most lasting visual impression is likely to be the EPG.

Can the presence of the EPG in the electronics retailer, or the neighbouring household, visited by a potential purchaser, contribute significantly to a positive purchase decision? If it is concluded that it is the range and depth of digital packages that will be the key driver to the uptake of digital television, then there is every reason to believe the EPG can be the most efficient medium to demonstrate this. Additionally, if the web-surfing paradigm has a strong appeal to a particular demographic group (the 16–34 age group for instance) then the EPG can function as a familiar indicator of the potential of surfing or navigating in the television field.

As argued earlier, digital television is, and will continue to be, principally a point-to-multipoint technology. However, as the hybridization of television and online progresses through the provision of increasingly sophisticated set-top boxes with integrated modems, obvious marketing opportunities arise which are not dependent on conventional banner or display advertising.

The possibilities here do not greatly differ from those offered by the EPG, but there are some aspects that need to be drawn out. First, EPGs are proprietary; the web is not. Second, the degree of interactive communication afforded by the web is currently much greater than that offered by a typical EPG. Early digital television boxes, particularly those developed for the mass-consumer market, are not generally fully Internet-capable (although there have been a rash of analogue PC/TV hybrids at the high end of the market which purport to be). E-mail and ‘chat’ facilities on EPGs are either not available or difficult (both requiring the purchase of an additional keyboard), or what is being offered is not the ‘open’ web, but a subset of it which is more or less difficult to opt out of.

These aspects of the web have advantages and disadvantages in marketing terms. From a marketing point of view, it is in fact preferable for the EPG to be a proprietary, closed environment, since the audience remains captive within it. If there is ‘entertainment’ of one kind or another available out on the web, and the EPG links seamlessly to it, then the audience can ‘leak’ away from the digital television environment, at least in principle; andas argued elsewhere, just as the domestic television set may not be the ideal environment for viewing web-based entertainment, the web may not be the ideal environment for offering TV-like programming based on linear video.

There is evidence to suggest that such ‘leakage’ is a real possibility. PricewaterhouseCoopers, in a consumer technology survey published in June 1997, found that one third of respondents admitted they substituted television viewing for Internet usage. In another major survey published in April/May 1997, 35 per cent of respondents reported that the web had replaced television daily and 27 per cent stated it had done so at least once a week.

The possibility of substitution taking place where there is a seamless link from television to web (i.e. where a television set-top box offers web access) is, presumably, much greater. This means that the opportunities available for the digital television operator to promote the service and market its features to its own subscribers are correspondingly lessened. In a way, this is an extension of the problem of fragmentation in a multichannel audience. In this situation, the web creates another universe of ‘channels’ which the viewer can be drawn into, inevitably eroding the ‘viewing-time’ – and therefore, the marketing opportunity – allocatable to each individual channel, including that of the digital television operator.

The advantage of true web functionality, on the other hand, is that it makes it possible for digital television operators to enter into a dialogue with their audiences (and potential audiences) which is not possible when operating in the traditional one-to-many broadcast mode. A good example of this is Fox Home Entertainment’s The X-Files web site, where fans can register their interests, enter competitions, order videos and other series-related merchandise, look up plot details and information about the main actors, and even download clips from the series.

The purpose of the site is two-fold: it creates and reinforces a ‘community’ of interest around The X-Files series, and drives users back to the video material, whether on television or otherwise. In an ideal world, this becomes a virtual cycle: The X-Files fans usethe web site to expand the ingredients of their interest, have an upcoming series or episode promoted to them, watch the episode, and then bounce back to the site. Other reinforcing mechanisms can be added in, such as being able to e-mail the actors, to ‘chat’ with other fans about the latest episode, and so on.

The creation of such a cycle is obviously vital if the audience is not to ‘leak’ away in the way described. If such a cycle can be created, then the marketer can derive all the benefits of the web experience (one-to-one interactivity, marketing and communications), without any of the disadvantages. But it is a delicate balancing act, for the TV-to-web part of the cycle is so powerful a conduit that it is in danger of becoming a one-way street for the viewer.

A recent study, for instance, found that the percentage of web users who discovered ‘new’ web pages through promotion of the URLs (Uniform Resource Locator, or web site address) on television is rising, to 38 per cent at the end of 1998. This finding is supported by more objective evidence about the most popular content sites: many of the most-visited correspond to real-world television brands (CNN, ESPN, etc.).

Without such a loop already being established, it is open to question whether attempting to convey the consumer in the other direction (i.e. from web to television) is an effective marketing strategy, such as might be used to promote a digital television service to new subscribers. This is because the most effective model is clearly one in which the television viewing experience is central: the web site is used to expand the television experience, but also ultimately to promote it, so that viewers are driven back to it. The web is therefore a ‘supplementary’ marketing tool for the digital television operator, not a primary one.

In any case, using a web site as a primary marketing-tool produces a number of difficulties. In the TV-to-web direction, the group of web site users is self-selecting: they regularly watch the relevant programme or channel, they happen to be connected to a PC, and they know where the site is (the URL is promoted on the television screen or on the EPG; eventually, it may evenbe embedded in the television picture, so it can be clicked on to take the viewer direct to the site).

Moving in the opposite direction presents difficulties; while the web is increasingly mass-market, its demographics are skewed, so ‘picking’ up the type of web user who might want to watch a particular type of programme or to sign up for digital television is more difficult (outside the USA, web access is frequently still a minority interest: the cross-over with would-be digital television subscribers is even more marginal). Moreover, if the digital television brand is a new one, it will be difficult to construct an online brand so visible that the web site will act as a conduit to the new service. In other words, new digital television entrants have a higher entry threshold to cross than existing, established ones, whose brand is already visible on the web.

Finally, such web-based marketing strategies ultimately face a technological constraint: bandwidth. The most effective medium for promoting television is television, as any scheduler knows. Moreover, since air-time is always restricted, on-air television promotions are reduced to a series of brief, fast, intercut video clips showing the principal highlights of the programme or channel.

As at early 2000, standard dial-up Internet access (which is all that most digital set-top boxes offer, if at all) is not able to handle video in such a way as to have a great deal of impact. Framerates are slow, the video is not full-screen, and the colour is muddy. The sound quality is also usually blurred. There is a way round this, which is to download the promotional video-clip (the model used in The X-Files site); but this inevitably takes time (particularly outside the USA), and the clip cannot be very long.

No doubt advances in digital compression technology will improve this situation over time, but it is doubtful whether broadcast-quality video will ever be available in real-time over an ordinary phone-line (although technologies such as ADSL, cable modems, and ultimately fibre may make such a facility available to a minority).