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ITV and BBC DTV services: are cheap set-top boxes the answer to growth?

Although, as a priority, it might come below the job of persuading the country to convert to the euro or to switch to using public transport to clear our gridlocked roads, Tony Blair has got a major problem on his hands when it comes to many people's obsession - television.

Despite a report suggesting that by 2010 the average person in the UK will spend 25 hours a week watching the box in the corner of their front room, the Government faces an uphill battle to, by then, have
persuaded enough of them that they should be on the receiving end of a digital signal. By 2010, at the latest, it hopes to have persuaded 96% of the population to make the switch, allowing the much talked about analogue switch-off.

But at the current rate, it is looking like mission impossible.

Last week, Pace Micro Technology, the company behind a new generation of set-top boxes able to receive free-to-air programming and due to launch at the end of April, revealed it hoped to sell 400,000 of them by May 2003 to those customers not tempted to subscribe to Sky, or direct to ITVDigital or one of the cable companies.

At that rate, however, it could take up to 18 years to convert
the remaining households that don't have multi-channel television and could receive DTTV with the current signal footprint.

Can switch-off happen in 2010?

The huge problem facing the Government is that, even if Pace -  or others preparing to provide free-to-air digital, such as SetPal -  smashes its sales target; if BSkyB reaches its set target of signing up seven million subscribers by the end of next year; if the troubled cable sector finally gets its act together and emerges from beneath its mountain of debt - even if all that happens, the figures still don't add up to allow analogue switch-off in 2010.

Still, a spokeswoman for the Department of Culture, Media & Sport dismissed claims that it is fighting a losing battle. "One in three households in the UK already have digital TV. A total of eight million households is a significant number," she said.

"We are, of course, very interested by the launch of affordable set-top boxes. It will be a significant development in encouraging people to convert."

In January, the Government established The Digital Television Stakeholders Group, an independent forum for those involved in the future of digital TV in the UK.

Channel 4's deputy chairman, Barry Cox, was appointed chairman of the group, which is responsible for the strategic delivery of the Government's Digital TV Action Plan.

Cox has said his role is not to persuade people that digital is a good idea, but to create the right environment for it to work. He believes that, if the Government and broadcasters are to succeed, they will have to tackle the reasons that terrestrial digital is lagging behind cable and satellite.

OMD UK associate director Toby Hack believes the main problem is the public's confusion about digital TV.

He says: "In general, I think Pace offers the potential to be extremely helpful to the Government in its attempts to go digital.

"It's obviously good news to have a cheaper option in the market up against the likes of Sky, NTL, Telewest and ITV Digital. A one-off price to go digital must seem like a good offer, and the ability to trade up to pay services will add to its marketability.

"However, digital TV is a confusing marketplace for the consumer. Consumers don't really know what they want and the messages from the different platforms are confusing as there are so many things on offer.

Clever marketing required

"Pace and its competitors will have to do some clever and brave marketing in order to make an impact. Having the BBC on board to educate consumers about the technology will help, as will the backing of other broadcasters."

ITV is also in favour of affordable set-top boxes, which it sees  as a way of rescuing its ailing ITV Digital service.

However, even if Pace did shift 400,000 boxes by May 2003, and the launches of other set-top boxes were a success, that won't necessarily prove ITV Digital's claim that there is a "substantial potential market" for its pay-TV services, as it is likely many households will stick with free-to-air channels.

And some believe that, even if the potential for upgrade is there, such as with the Pace technology, the demand is missing.

One agency broadcast director says: "The low-cost boxes could do more harm than good to ITV Digital, as the people that buy them specifically don't want pay-TV and won't be very enthusiastic about subscribing to any extra services.

"The people who are going to buy the boxes will be at the lower end of the market, or people who aren't very interested in TV."

One of the major drawbacks of the Pace/DTT box is that many people will need to upgrade their aerials - which could push the cost up far higher than the headline figure of £99.

According to the Confederation of Aerial Industries (the trade association for aerial installers in the UK) up to a third of aerials in the UK may need to be upgraded to work with some of the low-cost decoders.

CAI technical executive Tim Jenks says: "There's a serious aerial issue that has to be sorted out. Unlike the analogue signal, digital is unforgiving because it either works or it doesn't. Thousands of ITV Digital subscribers have needed aerial upgrades.

A cheap aerial costs about £55, but then it will cost up to £35 to fit it and, if you're at the edge of a signal, an aerial could cost you up to £200."

Aerial cost no barrier

Jenks says: "I'm personally impressed with the Pace box. The quality is perfect, there's no problem with the product. I think the big question is whether there is anything worth watching on the free-to-air channels."

NovaPal, which is to launch the SetPal pure free-to-air box, reckons its product is even better and will allow many in poor signal areas to avoid upgrading their ariels.

Affordable set-top boxes may be the key to start the serious drive-up of digital terrestrial TV, but whether it will answer the prayers of the Government and broadcasters hoping to see through their digital revolution is far from clear.

Something needs to be done about consumer apathy and confusion in the market. Better programming and marketing would appear to be the key.