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The Report From Europe
BSkyB halts new channel launches
by Chris Forrester, European Editor

The United Kingdom (UK) has no more room for new DTH television channels on its current DTH/DBS platform. BSkyB is specifically putting the brakes on new third-party channel launches on its platform, potentially affecting 100’s of waiting channels that are already in the pipeline. Citing “set top box memory capacity”, BSkyB said on October 3rd they will “cease to take further applications for places in the EPG launch queue” and any channels already in the launch queue – and thus nominally approved for launch – will be preceded with, but with “extreme caution”. The problem seems to be the limited ability of these older boxes with limited caching memory in place of volatile memory.

The news comes at a crucial point in UK television with a joint-venture satellite operation about to start, backed by the BBC and ITV (Britain’s main commercial TV broadcaster). Called ‘FreeSat’, it will launch in February and provide hundreds of TV and radio services WITHOUT charging a subscription fee of any sort. FreeSat is designed to replicate the Freeview digital terrestrial platform, which has been a huge success in Britain.

However, Sky is understood to have more than 100 TV and radio channels in its queue, in addition to a large number of channels that have already been allocated launch dates. Sky warns would-be broadcasters that there is a considerable risk that it will not be able to launch all of the services currently in its launch queue, as the increased volume “could pose an unacceptable risk to some set-top boxes”.

Sky added that it would not now accept applications to add any further TV or radio stations to the launch queue. Moreover, any broadcaster who does not now launch a new service onto the EPG when offered the opportunity to do so will be “permanently removed” from the launch queue.

There are already complaints being made, with more than one broadcaster grumbling to UK television regulator Ofcom arguing that the decision is a major breach of Ofcom’s ‘fair and equitable access’ rules to the Sky Digital platform. One well-placed insider also questioned the set-top processing argument, suggesting that Sky could make a virtue out of necessity by heavily promoting newer models of STB that were able to handle “hundreds of new channels”. “Box prices are now low, and if poorly specified boxes are in use, then now is the time to start replacement,” said one source.

Another described the decision as “horrendous”, and potentially “very damaging” to the industry. “Ofcom must surely defer any decisions of such magnitude until it conducts a full review of the whole platform markets - only then will it’s own detailed questions be answered. And only then will the real power (and intent) of Sky become visible.”

Another complainant argued: “Sky has had a request from [us] for another channel since August. So, a company which has paid them over half a million pounds over the last few years is told to go away. Is this a way to behave with any client?”

The Sky letter:

“After very careful consideration, we have taken the decision to make these changes in order to safeguard the interests of both viewers and platform users. Our goal is to provide a high quality viewer experience and a stable environment for all platform users, while maintaining the principle that access to the EPG should be available without discrimination to all broadcasters.

The context for these changes is the rapid growth in the number of services listed in the Sky EPG. As you will be aware, there are already over 600 television and radio services listed in the Sky EPG, compared with fewer than 200 at launch of the platform. When taking into account regional variants and interactive services, there are currently almost 1,000 services on the platform. We consider that this sustained growth is a testament to the success of the platform in meeting the needs of viewers and broadcasters. No other TV platform in the UK provides this level of access for broadcasters or of diversity for viewers.

Every additional service listed in the EPG increases the amount of set top box memory needed to display the EPG. The amount of memory contained in each set top box is, however, finite. While Sky continues to take steps to ensure that memory is used efficiently, there are very significant memory constraints in several models of boxes, which are currently in use by viewers, and shortly we will have realized all of the significant gains that are to be made through software modifications. There is a risk of malfunction if the amount of data needed to display services in the EPG approaches or exceeds the amount of memory available.”

BSkyB says that it is looking to add certain approved third-party channels onto the EPG at a rate of two services a week during 2008, but stresses it might not be able to maintain this rate.

Another broadcaster, in a letter to Ofcom seen by us, said Sky’s reasoning for curtailing access is “extremely weak”. The letter to Ofcom states: “BSkyB estimate there are some 2.5m out-dated boxes in the market, which they must have known about for a while and couldn’t have suddenly have come to their attention. Ofcom must be very concerned as this could potentially have a very wide damaging effect to the UK independent broadcasting sector.”

This EPG agreement transfer scheme would now allow what had been a highly informal trade in EPG positions to become more ‘official’. The trading scheme would allow existing broadcasters to sell their existing EPG positions. Sky says they will relax their previous rules about the ‘trading’ in EPG numbers, permitting a would be broadcaster to enter into an arrangement with an existing EPG holder – and in effect ‘buy’ that EPG slot. Sky says this is the fairest and most efficient way to enable new broadcasters to gain access to an EPG number. These relaxations come into effect on January 1st.

However, Sky’s changes to their ‘Open Platform’ policy will affect dozens of would-be broadcasters seeking access to the UK’s growing digital audience. It is also unclear just yet as to how the new terms will affect would be broadcasters seeking access to an EPG listing on the BBC and ITV-backed ‘FreeSat’ proposition, as mentioned, and due to come to air in early 2008.

Clearly, one of Sky’s problems is a legacy set-top box perhaps possessing inadequate memory or processing ability. Many of these boxes are around eight years old. However, it is also likely that some will question Sky’s obligations under its ‘fair and equitable’ access to its platform. This problem’s timing, when added to the basket of other regulatory issues (see below) on its plate, is far from ideal.

The complaints seem to be focusing on Ofcom’s ‘fair, reasonable and non-discriminatory’ (FRND) obligations on Sky. In essence, these rules require Sky to carry any channel, provided it meets Sky’s technical standards, is adequately funded and insured, and pays Sky’s Technical Platform Service fee – and, of course, secures satellite space segment from the likes of SES Astra or Eutelsat or one of their affiliated service providers. (The summary rules and regulations may be viewed at: http://www.ofcom.org.uk/consult/condocs/tpsguidelines/statement/ or the full 78-page formal rules at: http://www.ofcom.org.uk/consult/condocs/tpsguidelines/statement/statement.pdf

There’s nothing in the rules and regulations that talks about set-top box memory issues, with more than one potential complainant grumbling that this might be something of a red herring designed to circumvent the Ofcom obligations. Ofcom estimates there are about 2m set-top boxes that are not in one of Sky’s pay-TV subscription schemes. These include second-boxes in homes as well as those serving viewers keen to get high-quality satellite feeds of the main (terrestrial) broadcast networks but not wishing to pay Sky’s subscriber fees.

However, on the other hand – and in Sky’s defence – there’s little merit in Sky closing the door on would-be broadcasters from whom it earns a perfectly decent fee for the provision of such technical services without good reason. Sky earns a raft of fees for technical access to its platform starting at £78,000 per channel ($159,000) with extra charges levied according to a broadcaster’s needs.

A counter argument from one embryonic broadcaster asked whether, if the set-top box argument was a real problem, Sky couldn’t turn this to their advantage by promoting ‘new’ set-top boxes that were capable of receiving these extra free-to-view channels. In other words the new – and potentially appealing niche services - were restricted to those boxes able to easily these new transmissions.

As already mentioned, Sky’s decision also directly affects the value to existing broadcasters of their allocated EPG numbers. Indeed, for some poorly performing channels, they might be sitting on a potential goldmine given that they can now openly trade their EPG position to a new entrant. Figures of £50,000-£60,000 ($100,000-$120,000) have been mentioned as being the ‘open market’ price of an EPG position.

It is also known that some of the satellite service providers closely involved in this sector are also watching developments closely, as Sky’s decision closes a lucrative business segment from them. Teleport operators such as Arqiva, Globecast and others, as well as satellite operator SES Astra, must also be concerned, given that it has allocated a fresh satellite to the UK in order expressly to allow for expansion. Astra 2C is now in position at 28.2 deg East, and ‘open’ for business. Astra 2C’s first client transmissions will be towards the end of October.

But, as ever in the world, there is an alternate in the shape of ‘FreeSat’. Launching in February, FreeSat is backed by the BBC and ITV, the UK’s two largest broadcasting organisations – and they’ve plenty of space in their line-up. FreeSat uses the same video transmissions stream as BSkyB, but is NOT dependent on their EPG system. FreeSat uses an MHEG-based system which will have as a by-product an attractive-looking on-screen menu system.

There’s another factor. The UK is turning towards HDTV. There are already 13 HDTV channels on air (all on DTH satellite) and more are planning to launch. New HD channels, whether on Sky or FreeSat, jump straight to the top of the queue, first because they can only be received by ‘modern’ MPEG4-equipped boxes and, secondly, because Sky (and FreeSat) wish to promote high-def, and this applies to the satellite operators. SES Astra has 10 full transponders ready to go and is happy to see them leased to Sky clients or FreeSat.

This means broadcasting in Britain is in an interesting phase at the moment. Freeview is delivering almost 30 free channels to about 9m homes. BSkyB’s subscriber numbers are about 8.5m homes (cable has just 3.5m), and FreeSat is about to start. That there will be hurdles ahead, few doubt, but most also agree the UK now has real digital TV choices open to them.

London-based Chris Forrester is a well-known entertainment and broadcasting journalist. He reports on all aspects of the TV industry with special emphasis on content, the business of film, television and emerging technologies. This includes interactive multi-media and the growing importance of web-streamed and digitized content over all delivery platforms including cable, satellite and digital terrestrial TV as well as cellular and 3G mobile. Chris has been investigating, researching and reporting on the so-called ‘broadband explosion’ for 25 years.