17/06/2010 - Tim Westcott presented the Digital terrestrial television market and the switch from analogue to digital in Europe. For animation producers the transition to DTT will have an impact. There will be more channels, but not necessarily more customers. At the same time the audience will be more sophisticated and targeted. The financing models will change as there will be lower investment by traditional partners.

Tim Wescott is a Senior Analyst, Television, at Screen Digest. He joined the company in September 2004 and has written reports on film and sports rights, animated movies and television on the internet.

What is the situation of the digital switch off in the European countries?
EU has set a target deadline for analogue switch off of 2012. Some countries will probably miss the deadline as indicated in the chart below. Switch-off is a major transition for some countries, but means very little where cable/satellite distribution is widespread because of the presence of a wide offer of programmes. What it is certain is that in all countries all TV homes will become multichannel homes.

At the end of 2012 the situation will be very different. According to our analysis all the countries will have more than 75% households which have converted primary TV set to digital. Luxembourg, Finland, UK, Norway, Ireland, Spain, Austria and Czech Republic will have 100% switch off. The switch off is very rapid in France and Spain, where government launched the digital terrestrial television very early. In Germany the process is slower because it is a country with a high cable penetration. The movement has been slower because the households had to switch from analogue cable to digital cable.

What does digital terrestrial television mean for pay TV?
Pay TV is the way people are getting the digital TV. Pay TV has been launched in Europe well before DTT existed. There were platforms in France (Canal +), but also in Spain and Italy. Is has been some times a very painful transition for TV operators. There is a limit of what people will pay for a monthly subscription and digital means that instead of paying a monthly fee to get two or three pay channels, suddenly the providers have to give them fifty TV channels. The main implication of DTT is that before digital terrestrial came in, if people wanted to have multi-channel TV they had to pay a pay TV subscription. With DTT people can have multi channel with a low cost box connected to the TV and you have a bouquet of 50 / 70 channels. Pay TV cannot anymore sell the idea of multi-channel offer. Pay TV has to offer premium content, like sports and movies, high definition services or broad band connections. The real battle is not so much analogue versus digital, but free TV versus pay TV. In 10 years time analogue will mean nothing because every country will be digital.

What is the penetration of pay TV in Europe?
The analogue and digital penetration is very high in Northern countries like Belgium, The Netherlands, Norway and Sweden, as shown in the chart below. In Italy and Spain there are room for growth.

What will be the penetration growth of pay TV and DTT in the next years?
The real strong growth is coming from digital terrestrial television. Pay TV has reach saturation in most countries. Channels that are transmitted via DTT, will have an increasing take of. Services which are pay TV based will have very limited growth or a decrease, as people shrink from pay TV subscription to DTT which allows receiving free channels. In Poland there will be a significant growth.

	PayTV	DTT
NL	0%	6%
BE	-1%	41%
NO	0%	6%
SE	-1%	4%
DK	0%	9%
PL	6%	73%
DE	1%	-9%
GB	3%	2%
FR	1%	1%
ES	3%	11%

What will the TV landscape look like after the DTT penetration?
After the digital switch off, people will have the choice of more channels and viewing will be spread around to more channels. Incumbent channels, like public TV and older commercial channels, will lose distribution advantage. If those channels will be in the basic package of the Digital Terrestrial offer, they will be available in exactly the same number of homes. They will have less advantage for advertisers.

Viewers will be more prone to graze and will be less loyal to channels. Advertising revenue will be shared out between more channels and advertisers will expect channels to deliver target audiences more efficiently.

The chart below shows two examples of the decreasing importance of national (public televisions and free commercials) in UK and France.

The viewing share of national televisions have been in decline for many years, while others TV (cable, satellite and digital terrestrial channels) have increased their share of viewing. The big question is whether those lines will converge or whether the incumbent channels will reach a point where their viewing share stabilises. There are some positive indications. ITV in UK declared that they increase their audiences for the first time since the early ’80. Incumbent channels, even if there are loosing their distribution advantage, have a good level of loyalty among viewers because of their historical position. Probably the national channels will reach a stabilisation point, especially in the prime time slots. In the afternoon slots, many channels are deprogramming animation programmes because adult audience is more valuable for them.

The viewing share is divided in hundreds and hundreds of channels. There is a sort of cannibalisation of audiences and advertisement.

How the advertising market is evolving in this situation?
Multichannel share of audiences is increased. The share of advertising has also increased for multichannel TV. Taking France and UK as example, we can say that there has been a dramatic fall in advertisement revenues for the traditional channels, while multichannels that were on the Sky platform, cable and digital terrestrial, almost reached parity with the main terrestrial channels.

What is the impact of the economic recession?
There has been a sharp decline in TV advertisement market in the 2nd half of 2008 and in the 1st quarter of 2009. The consequence is that the major free-to-air broadcasters are cutting or freezing programme spend. Even the public broadcasters, that have revenues form the governments or from subscribers, are not insulated. Free to air broadcasters are focusing on primetime (because of bigger audience) and cost-effective programmes (realty TV shows rather than dramas). Pay TV is more resilient. People will not cut their subscription because they spent more time at home.

What are the annual revenues of the major broadcaster?
The biggest markets are Germany and UK as they have the biggest public TV sectors and the bigger commercial broadcasters. They are followed by Italy, France and Spain. Over the last decade those markets have grown. Probably all the markets will decline in 2009. If we compare with what they spend in programming, we realise that the TV spending is in line with their revenues.

If we add all the amounts spent by public broadcasters in original programmes, we realise that they spend more than the Pay TV operators. Nevertheless if we look at the companies individually, in four of the big five countries, we realise that the biggest spender is a private pay TV operator (Canal + , BSkyB…). Public broadcasters spend a big proportion of their revenues in sports and movies, not in originating programming.

What does all this mean for animation?
The first effect is that there are more channels, but not necessarily more customers. The new channels do not necessarily buy animation. The second consequence is that there is a more sophisticated targeting of audience. In animation there are more and more targeted channels: pre-schools, girls, boys, teenagers…

In the whole audiovisual sector, the financing model has changed as there is a lower investment by traditional partners. Broadcasters are taking much less risks and are reducing the licences. In terms of global market, there is a more positive development. If we look for example to US, we realise that the US has really open his market to foreign studios.

The last positive consequence is that there is a direct route to the audience (via broadband and portable media devices).

There are more and more channels being launched. The positive side is many of the public broadcasters have launched their own children channels. The advantage for the broadcasters is that they are able to programme and schedule an entire channel with children shows and not squeeze into adult programmes.

Another recent evolution is that the US broadcasters, (Cartoon Network, Disney Channel, Jetix and Nickelodeon) are commissioning local programmes to European producers.

Another positive note is that animation producers no longer just sell to TV. Kids are consuming programmes on a lot of different devices, like IPod or PC, and this is an interesting potential market for producers.