According to a recent article (‘BT Vision vows to tackle slow take-up’, The Daily Telegraph, 6 January 2009), BT had around 350 000 BT Vision subscribers at December 2008, two years after its official launch. The latest official BT figures indicate that there were 320 000 BT Vision subscribers at September 2008. Even taking into account the fact that the initial launch was a soft launch and that the service did not get strongly marketed until six months later, this represents a mere 7% penetration of its retail broadband subscriber base.
This compares poorly with some of its peers. Across the channel, Belgacom had achieved 7% IPTV penetration of its broadband access channels within one year of launch, rising to 12.4% within a year and a half and 16.3% within two years. In spite of a slow start, even Telefónica’s IPTV subscriptions accounted for 7.6% of its retail broadband accesses in just under two years.
We define IPTV as video services delivered to the TV over a closed, managed IP network. This definition therefore excludes video services that are usually delivered to the PC, rather than the TV, over the public Internet, such as YouTube and iPlayer, which we refer to as online video. Although the UK was home to some of the first IPTV services in Europe, both of its pioneering services have struggled. Local incumbent Kingston Communications launched its service in 2000. The service reached 10 000 subscribers at its peak, but was shut down in April 2006, because the number of subscribers had dropped to 4000. HomeChoice, which offered its services across a limited footprint in Greater London , had 45 000 subscribers when it was acquired by Tiscali in August 2006. Although the new owner extended coverage, the number of subscribers had dwindled to 36 000 by September 2007, according to the last figures released by the operator. Tiscali is winding up its IPTV operations in its domestic market of Italy, and it remains to be seen whether it will continue to offer IPTV services in the UK. Even Orange, one of the world’s most successful IPTV operators, seems to have quietly abandoned its plans for its delayed UK service at the end of last year.
IPTV has been gaining critical mass in several markets across the world, and several deployments now exceed a million subscribers – so why has it been such a failure in the UK? One of the key reasons is the tough competition it faces from other platforms:
- Digital satellite operator BSkyB dominates the UK pay-TV market, with nearly 8.5 million subscribers at September 2008. Not only does it offer an extensive range of programmes, but, unlike most of its peers, it is also an ISP, having acquired local loop unbundler Easynet in January 2006, enabling it to offer its ‘see, speak, surf’ triple-play services.
- Although its coverage only extends to around half of UK homes, cable operator Virgin Media is one of Europe’s most advanced cable operators. Not only are over 95% of its nearly 3.6 million cable subscribers digital, the operator also offers fixed and mobile voice, and recently launched a DOCSIS3.0-based 50Mbit/s Internet access service, thus seizing the lead in the domestic broadband speed wars.
- Free-to-air digital terrestrial television (DTT) platform Freeview has had considerable success since its launch in 2002, surpassing BSkyB as the main provider of digital TV to UK households. The UK regulator Ofcom estimated that over 9 million homes used Freeview for digital reception on their main TV set in September 2008.
Largely due to the above platforms, the digital penetration rate amongst UK TV households was estimated by Ofcom to be over 77% in December 2006 when BT Vision was launched, rising to 88% at September 2008, well above the European average. Therefore, BT entered the market too late to capitalise on digital switchover, and missed the opportunity that many of its peers still have in Europe.
Key to its strategy was the idea of targeting the small majority of UK households that have not opted for pay TV, offering them content beyond what is available via Freeview without having to commit to a regular subscription. The proposition consists of the 40-plus free-to-air digital TV channels delivered via DTT, while on-demand value-added content is carried over IP, with the additional benefit of a low-cost digital video recorder (DVR). This has so far failed to appeal to BT’s nearly 4.6 million broadband subscribers, because the range of content, although growing, remains limited. The UK’s rapidly growing online video market means that there are plenty of richer, PC-based alternatives to supplement Freeview.
Furthermore, BT Vision is even less likely to appeal to non-BT subscribers. Although there is no requirement for a regular pay-TV subscription, these benefits are pretty much outweighed by the commitment to a BT broadband subscription, at a minimum cost of GBP15.65 per month, excluding temporary promotions. In comparison, BSkyB’s entry-level pay-TV package costs GBP16.50 per month, and offers more than 150 TV channels, as well as a near-VoD service with a good range of premium movie content. This is complemented by various broadband packages, starting with basic 2Mbit/s access free of charge.
Operating in such a tough environment, IPTV operators in the UK will have to redouble their efforts if they are to have any real impact or presence in the market. Unless they can offer a user-friendly TV experience that is genuinely differentiated from competing platforms, they seem destined for extinction.
