Mae'r cynnwys hwn ar gael yn Saesneg yn unig.

Market Impact Assessment of the BBC’s High Definition Television Proposals

23 Gorffennaf 2010

Executive Summary

1.1 The current BBC Royal Charter and Agreement, which came into effect on 1 January 2007, established a Public Value Test (PVT) regime to assess whether the BBC’s proposals to launch new services in future – or to amend existing services – would be in the wider public interest.

1.2 As part of the PVT, Ofcom carries out a Market Impact Assessment (MIA), the purpose of which is to assess the likely impact of the proposed services on products and services which are substitutes or complements with the proposed BBC service.

1.3 This document sets out the findings of Ofcom’s second MIA to be carried out in the context of the new PVT regime. It considers the market impact of the BBC’s proposed High Definition television (HDTV) channel. The MIA has been conducted in accordance with the Terms of Reference agreed by the Ofcom-BBC Trust Joint Steering Group, and with the MIA methodology agreed between Ofcom and the BBC Trust.

The proposed BBC service

1.4 In March 2007, the BBC Executive applied to the BBC Trust for permission to introduce a new HDTV channel. It would be a mixed-genre channel, drawing from content across the BBC’s channels, and would aim to meet the BBC’s public purposes. The channel would be available free-to-view, and would carry no advertising.

1.5 The BBC Executive is seeking approval to provide a service of nine hours per day, 15:00 to midnight, with some flexibility to extend beyond this to allow for the coverage of significant live sport or other events. At launch, the channel would offer a schedule of three to four hours per day, building to nine hours in late 2008. Virtually all the content (more than 95% of the schedule) will be HD versions of programmes broadcast in standard definition on other BBC channels

1.6 The intention is to make the HD channel available on digital satellite, digital cable and digital terrestrial television. The BBC Executive may also make the channel, or content from it, available on the internet, subject to value for money considerations and as technology allows. This could be through both bbc.co.uk and internet protocol TV providers.

1.7 The BBC Executive has identified two mutually exclusive options for digital terrestrial television (DTT): the full nine-hour schedule or a four-hour schedule overnight between 0200 and 0600.

1.8 The BBC Executive application states that the four-hour overnight schedule would be offered ahead of digital switchover (DSO) and possibly after switchover if insufficient spectrum capacity were available during the transmission hours of the nine-hour schedule.

1.9 Under the option where sufficient spectrum capacity becomes available following digital switchover, the four-hour overnight schedule on DTT would be replaced by the same nine-hour service as provided over the cable and satellite platforms.

1.10 The four-hour overnight schedule would offer selected highlights from the following day’s nine-hour schedule on cable and satellite. In order to provide capacity for this at launch, the BBC Executive proposes to take down the following services from Freeview between the hours of 0200 and 0600:

  • BBC Four until close-down;
  • BBC Parliament, when broadcast;
  • two BBCi interactive video streams (accessed through the red button on remote controls);
  • the BBCi interactive news loop (also accessed through the red button – for the avoidance of doubt, BBC News 24 would not be affected).

Our approach

1.11 Our assessment of the market impact of this service has been based on:

  • A full stakeholder engagement programme – including written submissions, and a series of meetings with interested stakeholders
  • Consumer research commissioned specifically for this MIA. This research was carried out for Ofcom by Illuminas, and is published alongside this Ofcom report
  • Desk research, and Ofcom’s own qualitative and quantitative analysis.

1.12 Our analysis has also drawn on the research and analysis provided by the BBC Executive. Throughout the process, we have maintained regular communication with the BBC Trust Unit, with the aim of ensuring that the PVA and the Ofcom MIA are based on a broadly consistent set of assumptions, and that the PVA and MIA both provide evidence on all relevant issues.

1.13 In carrying out this MIA, we take account both of ‘negative’ substitution effects and ‘positive’ market creation effects. We also consider both static effects (the impact on demand for other products and services assuming no change in behaviour by other providers in response to the BBC service launch) and dynamic effects (through changing market behaviour, and impacts on investment and innovation by other providers in response to the BBC service). Our relevant analysis period focuses on the next five years.

1.14 There is much uncertainty about the likely development of HD services in the UK over the next five years. Take-up of HD Ready television displays has increased significantly, but take-up of HDTV services remains in an early stage – in June 2007, there were around 460,000 HDTV subscribers, out of a total 24m UK households. It is a widely held view that take-up of HD services will accelerate over the next few years, but there is no consensus about whether HDTV will become a mass-market proposition in the UK.

1.15 This uncertainty about future HD take-up poses challenges for this MIA, as we need to assess the impact of the BBC service against the counterfactual of a scenario in which the BBC does not launch an HD channel – but in which other drivers towards HD (including HD production and HD broadcasting by other players) continue to develop. In the light of the significant degree of uncertainty over the future of HD take-up, we have considered three scenarios for this counterfactual – a central scenario, which forms the basis for the majority of our analysis, and higher and lower scenarios around the central case. This summary focuses on the central scenario, and we report sensitivity analysis in Section 4 of this document.

Impact on affected products and services

1.16 The terms of reference for this MIA noted that the following products and services could be affected by the launch of the BBC HD channel:

  • TV platform services and network services
  • Broadcast services on various delivery platforms
  • Provision of content – including programme-making and rights exploitation
  • Hardware and software, including television reception equipment, recording and playback equipment, and physical media
  • On-demand services.

1.17 We have considered the likely market impact in each of these areas. Before summarising our findings, we note that industry stakeholders were largely supportive of the BBC’s proposed HD channel, although they raised some concerns about specific aspects of the BBC’s proposals. We also note that the key impacts arising from the BBC HD channel launch are likely to relate to take-up of TV platforms, and to broadcast services.

Impacts on TV platforms

1.18 In terms of TV platforms, the main impacts are likely to be as follows:

  • The BBC HD channel is likely to deliver consumer benefit through increased take-up of HD. This positive impact is likely to be spread across the major TV platforms, including DTT, satellite and cable. It seems likely to support the relative position of the DTT platform in the longer term (although, as discussed below, the position of DTT will be affected by the nature of the BBC HD service on DTT), and also to encourage the take-up of the new PSB Freesat platform. At the same time, the pay satellite and cable platforms could benefit from increased subscriptions to their HD services. Because the market position of different broadcasters and TV service providers differs across platforms, we consider it a positive factor that the benefits are likely to be spread across all these major platforms
  • The impact on DTT is the most complex. The BBC’s HD channel, when taken together with the likely response of other PSBs in accelerating their move into HD broadcasting, could help to maintain the position of the DTT platform in the longer-term (as long as the DTT platform has sufficient capacity to carry a number of HD services)
  • But there is some risk of DTT platform erosion in the period where the nine-hour service is available on other platforms, but not on DTT. Our discussions with stakeholders have noted these possible impacts, but have suggested that the extent of the impact may not be significant in the core period covered in this MIA
  • The PSBs have raised concerns over switching from DTT in the longer term, if the full BBC HD service does not become available on the DTT platform. We recognise the relevance of this issue, but this MIA is not the place to reach conclusions about the way in which multiplex capacity might be used to transmit HD services on the DTT platform – these issues are being actively addressed elsewhere. Nonetheless, we recommend that the current PVT process should be concluded in such a way as to ensure that the launch of the BBC HD channel on DTT does not create barriers to the delivery of a number of HD services on the DTT platform – such barriers may arise if, for instance, the BBC’s launch were implemented in such a way that it holds back the use of new transmission technologies (such as DVB-T2) on DTT
  • A secondary effect of the BBC HD launch on DTT may be that the number of homes that are equipped with an MPEG4 capable DTT set top box will increase faster than if there were no BBC HD service. This will potentially allow the earlier, commercially viable, introduction of MPEG4 SD channels and/or the conversion of MPEG2 channels to MPEG4 - this could increase spectrum efficiency as more channels will be offered in the same bandwidth. We note that any move to MPEG4 would be subject to a separate Ofcom decision-making process. Nonetheless, we note that this could be a positive impact of the BBC HD channel launch, albeit one which has costs attached – in terms of the cost incurred by consumers in upgrading to MPEG4 set top boxes
  • Due to capacity constraints, the relative position of internet protocol TV (IPTV) platform operators may suffer if there is significant consumer demand for HD services – as current broadband infrastructure does not allow HD services to be delivered to a significant number of consumers. Our discussions with stakeholders also highlighted that this issue could become more significant in the medium term, especially if there is significant HD take-up. In order to compete effectively with other platforms, IPTV providers may be required to expand capacity on their networks. We note here that the BBC Trust and the BBC Executive should engage with relevant industry stakeholders before launching an HD channel on IPTV.

Impact on broadcast services

1.19 Some substitution from commercial TV channels to the BBC HD channel is possible, but our consumer research and discussions with stakeholders suggest that this is likely to be modest:

  • In the short-term, there may be some negative impact on the viewing shares of commercial broadcasters (both directly through channel substitution, and indirectly through platform substitution effects), and hence on their revenues. However, consumer research and stakeholder comment suggests that channel viewing is shaped more by content rather than picture quality – and so these effects are unlikely to be significant
  • It is, however, possible that developments in platform capacity could increase the extent of channel substitution in the longer term. If the BBC is able to launch a full HD service on DTT, but others find that they lack the capacity to do so, then the BBC HD channel could be the only HD channel on DTT. If these circumstances were to arise, then some stakeholders have argued that they could lead to more material channel substitution on the DTT platform from commercial SD channels to the BBC HD channel. This view is not shared by all stakeholders, and we are not convinced that this impact is likely to be material – in particular, we have not been presented with any compelling evidence to suggest that this should prevent the BBC from launching the HD channel on DTT
  • We have also noted that some greater negative impact is possible if the BBC HD channel moves away from a mixed-genre service – for instance, the impact could be greater if the channel shows many movies in HD. To guard against this risk, we recommend that the BBC Trust ensures that the HD channel’s service licence holds the BBC to the mixed genre content model, as set out in the service description agreed at the start of the PVT process.

1.20 In addition to the above, the BBC HD channel launch could have a significant impact on other broadcasters’ plans to launch HD services. Many stakeholders told us that the BBC HD channel is likely to strengthen the commercial rationale for HD broadcasting, and so accelerate the pace at which other PSBs move into HD broadcasting.

1.21 Although the PSBs believe that they will eventually move into HD broadcasting anyway, the commercial model for free to air HD broadcasting is currently unclear – subscription providers are able to monetise the increase in consumer value through charging for HD access, but this avenue is not available to free to air broadcasters. As a result, HD channel launch by other broadcasters would most likely happen on a longer timetable in the absence of a lead taken by the BBC.

1.22 However, if the BBC launch promotes consumer take-up of HD services, it could improve the commercial rationale for HD channel launch by free to air commercial broadcasters. In any case, the broadcasters indicated to us that such launch would most likely represent a defensive move, intended to protect the DTT platform on which PSBs maintain a relatively strong audience share.

Impact on content provision

1.23 The BBC Executive has stated that it is transitioning to full HD production, regardless of the launch of an HD channel, and that the timetable of the BBC’s move to HD production will not be affected by the channel launch. As such, the BBC has argued that there will be no incremental market impact in this area.

1.24 However, the general view amongst stakeholders differs from that of the BBC. Stakeholders tended to argue that the BBC HD channel launch will promote HD commissioning and production at the BBC, as the BBC is one of the largest commissioners and producers of programming; and that it may be difficult for the BBC to justify producing all programming in HD purely for domestic consumption in the absence of an HD channel. Nonetheless, stakeholders also noted that HD production is likely to grow naturally, due to demand from international markets; and that the cost differential between HD and SD production is already declining. Overall, there may be some market impact here, although the scale of any impact is likely to be modest.

1.25 Stakeholders argued that, over the medium to longer term, the impact is more likely to be positive (or at worst, neutral): the BBC HD channel launch is likely to accelerate the transition to HD production, and spread the skills needed for content production in the HD environment. In due course, this is likely to help reduce the cost differential between HD and SD production, benefiting the industry as a whole.

1.26 Beyond production, it is possible that the BBC HD channel might affect competition for events rights – however, this is unlikely to be significant since the service description requires that 95 per cent or more of the HD channel schedule would be HD versions of programmes broadcast in SD on other BBC channels. As such, the events broadcast on the HD channel will be common to other BBC channels. Nonetheless, we recommend that the BBC Trust continues to monitor the BBC Executive’s activities in bidding for events rights, so as to ensure that a significant market impact does not arise in the future.

Impact on equipment and physical media

1.27 As noted earlier, we expect the BBC HD channel to promote greater take-up of HD services. This is likely to have a knock-on positive market impact on the take-up of HD equipment – such as HD set top boxes and satellite dishes – and so will have a positive impact on manufacturers and retailers of such equipment. There is unlikely to be a significant incremental impact on the take-up of HD Ready TV sets, as there is in any case a general consumer shift towards HD Ready displays.

1.28 Any impacts are, however, unlikely to lead to a significant change in equipment manufacturers’ and retailers’ producer surplus – as equipment markets are competitive, and changes in demand in the market place will be responded to reasonably quickly by producers. As such, any gains to particular producers will be quickly reduced as other producers enter the market to increase supply of these products and services, thereby reducing prices. This effect may, however, drive an increase in consumer surplus, as a result of the combination of increased consumer demand and reduced prices for equipment.

Impact on on-demand services

1.29 The BBC Executive plans to make available content from the HD channel via its iPlayer on-demand catch-up service when it is technically feasible to do so. In the MIA of the BBC’s on-demand proposals (-1-), we noted that internet service providers (ISPs) are likely to need to invest in greater broadband capacity, as a result of consumer demand for on-demand content delivered via broadband internet. We argued that this would impose resource costs that were relevant to the on-demand PVT process.

1.30 These costs are also relevant to the current PVT process in two potential ways. First, demand for downloading HD content is likely to impose greater costs on ISPs than downloading the same programme in SD, and / or it could lead to a deterioration in the quality of service experienced by users; this represents a resource cost which should be taken into account in the PVT assessment. Second, if ISPs were to seek to recover increased infrastructure costs from the BBC in return for quality of service guarantees, then there may be a direct financial cost to the BBC in the future.

Recommendations and proposed modifications

1.31 The nature of the market impacts identified means that we have not proposed significant modifications to the proposed service.Nonetheless, we make some important recommendations to the BBC Trust.

Nature of the BBC HD channel on the DTT platform

1.32 This MIA has noted that the launch of a BBC HD service cannot be considered in isolation of the wider discussions taking place in the industry about the future of HD on DTT – in particular about whether future technological developments, including the development of the DVB-T2 transmission technology, will enable the delivery of a number of HD channels on the DTT platform.

1.33 We have noted in this regard that some of the potential negative market impacts associated with the launch of the BBC HD channel may be more significant if the BBC’s HD channel is the only HD channel on the DTT platform. Moreover, we have also found that some potential outcomes of the PVT process could create barriers to the delivery of a number of HD channels on DTT – if, for instance, the BBC’s launch were implemented in such a way that holds back the use of new transmission technologies on DTT.

1.34 We understand that the BBC Trust is considering the BBC's proposals in the context of the potential delivery of a wider range of HD services on DTT. In particular, Ofcom considers it essential that the BBC HD channel is launched in such a way that it does not create barriers to the delivery of a number of HD services on the DTT platform.

BBC HD channel on IPTV and open internet platforms

1.35 Our analysis for this MIA has found that the launch of the BBC HD channel may create a negative impact on the position of IPTV platforms, relative to other digital TV platforms. This is because constraints on internet infrastructure mean that IPTV providers may not have sufficient capacity to deliver HD services to a significant number of consumers. While the BBC Executive intends to make the HD channel available on IPTV, the timing of such launch is uncertain, and may not be feasible until significantly into the future.

1.36 Nonetheless, as and when the capacity issues are resolved at some future point, the potential negative market impacts described above could be alleviated. Although we recognise that a solution to this issue is unlikely to be forthcoming in the near future, we recommend that the BBC Trust and BBC Executive engage further with industry stakeholders about the appropriate timetable for delivering HD on IPTV, with the objective of launching the HD channel on IPTV as soon as it is technically feasible to do so. This could be formalised by including a requirement in the HD channel service licence requiring the BBC Executive to deliver a version of the channel on IPTV, subject to technical feasibility. This should also be subject to agreement with IPTV service providers, and subject to the PVT assessment taking appropriate account of resource costs of additional infrastructure.

1.37 A separate issue arises in relation to the delivery of HD content via internet on-demand services (e.g. the BBC’s iPlayer) – this may create costs for ISPs through internet capacity requirements. We believe that the BBC Trust should take into account the costs arising in this area – if they are likely to be significant, they may offset the public value generated by the service.

Wider technology issues

1.38 We also note in this document that the emerging 1080p HD standard is not compatible with existing HD set top boxes and displays – its introduction would therefore have implications for existing HD customers and platform operators. The BBC Executive has not proposed to use 1080p for its HD channel and Ofcom has therefore not considered the impact of the BBC moving to 1080p as part of this MIA.

1.39 However, due to the potentially significant impact that such a move may have on existing HD viewers and platform operators, Ofcom believes that, if the BBC Executive does wish to move to the 1080p format in the future, the BBC Trust should consider carefully whether a further PVT would be required. It is important to note that we are not suggesting that a further PVT will definitely be needed – only that the BBC Trust should reserve the right to launch a further PVT if the industry environment at the relevant time suggests that such a process is necessary.

Service licence and wider regulation of the BBC HD channel

1.40 Although most stakeholders suggested that the BBC HD channel is not likely to lead to significant viewer substitution away from commercial channels, we have identified a risk that viewer substitution may be more significant if the BBC HD channel moves away from a mixed-genre service. For instance, the market impact may be greater if the channel were to show many movies in HD. As a result, and in order to minimise the risk of greater impact here, we recommend that the BBC Trust should ensure that the service licence for the BBC HD channel holds the BBC Executive to the mixed-genre service description. If the BBC has greater flexibility in this area, then the market impacts may become more significant.

1.41 We also noted earlier that the BBC HD channel is unlikely to have a significant impact on competition for events rights, as the events broadcast on the HD channel will be the same as those broadcast on the BBC’s existing SD. However, we recommend that the BBC Trust continues to monitor the BBC Executive’s activities in bidding for events rights – so as to ensure that the BBC adheres to the service description in this area. If the BBC Executive seeks to acquire more events rights than it would have done in the absence of HD channel launch, then the market impacts would most likely increase.

Footnotes:

1.- Ofcom, BBC new on-demand proposals: Market Impact Assessment; published 23 January 2006.

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