Public Value Assessment: BBC HDTV Proposal September 2007 This report has been redacted for the purposes of publication. The omissions are shown thus [x]. Where possible, the information has been replaced by ranges of figures or a general description. Contents Preface 4 1. Executive summary 5 2. The service proposals 15 3. Our approach 26 4. Strategy and fit with BBC’s public purposes 33 5. Quality and distinctiveness 41 6. Impact (consumer and citizen benefits) 54 7. Reach 70 8. Cost and value for money 85 9. Other service considerations 100 10. Spectrum capacity and potential reorganisation of the DTT platform 105 11. Conclusions 117 Annexes These are provided as supporting evidence at bbc.co.uk/bbctrust A List of industry respondents B Summary of industry responses received C The BBC Public Purposes D Sagentia report E BMRB report F Glossary G Confidential annex Preface The BBC’s new Charter and Agreement came into effect on 1 January 2007. The Charter makes clear that the BBC should be able to alter its UK public services – for example to respond to changes in technology, culture, market conditions and public expectations. However, any significant service-related proposals for change from the BBC Executive, including proposed new services, must be subject to full and proper scrutiny. The means by which this scrutiny takes place prior to approval is the Public Value Test (PVT). If the BBC Executive proposes to launch a new UK public service or make significant changes to an existing UK public service, the BBC Trust will consider the proposal and decide whether to launch a PVT. The BBC’s UK public services include all the BBC television and radio channels broadcast in the UK and the BBC’s online services. They do not include the BBC’s overseas services nor its commercial services, such as the publication of magazines or sale of videos by the BBC subsidiary BBC Worldwide. Where a PVT is undertaken the new service or change must not happen until that process is complete. The PVT has several elements. A Public Value Assessment (PVA) is prepared by the BBC Trust to ascertain the likely public value of the proposed change. This document is the PVA of the BBC’s HDTV proposal. In making this assessment, the BBC Trust acts in accordance with the requirements of a Framework Agreement concluded between the BBC and the Secretary of State for Culture, Media and Sport (Framework Agreement). It also must comply with all its other legal duties including the general duties in Article 23 of the Charter. At the same time, the communications regulator Ofcom prepares a Market Impact Assessment (MIA) examining the extent of any likely adverse impact on markets relevant to the proposed change. The BBC Trust then considers these two assessments and reaches provisional conclusions on the proposed change. In order to conclude that the proposed change should be made, granting approval either with or without conditions, the BBC Trust must be satisfied that any likely adverse impact on the market is justified by the likely public value of the proposed change. It also must be satisfied that approval would be consistent with the BBC Trust’s duties under Article 23 of the Charter and its other legal duties. The BBC Trust’s provisional conclusions will be the subject of public consultation. The BBC Trust will review and take account, as appropriate, of all representations received before making its final decision on whether or not to approve the proposed change. 1. Executive summary 1.1 Introduction In March 2007, the BBC Executive applied to the BBC Trust to launch a new high-definition (HD) television channel. The BBC Trust considers the BBC Executive’s proposed service to be a new service (under the Charter and Agreement) and has, accordingly, subjected it to a Public Value Test (PVT). The BBC Trust Unit is the independent unit that supports and assists the BBC Trust. Analysis has been carried out by the BBC Trust Unit so as to assist the BBC Trust in undertaking this Public Value Assessment (PVA). This document sets out BBC Trust’s conclusions on the public value of the HDTV proposals, together with accompanying rationale and analysis. Ofcom’s conclusions on the market impact of the HDTV proposals are published separately. 1.2 The service proposals The BBC Executive wishes to launch a single, mixed-genre, linear, digital TV channel in high- definition (HD) format. Their intention is to launch the service on digital satellite, digital cable and digital terrestrial television (DTT or Freeview). There are two key variations within the proposal regarding these platforms: o Digital satellite and cable: the proposal is for a nine-hour service broadcasting from 15.00 to midnight, with some flexibility to extend beyond this to allow for the coverage of significant live sport or other events o Freeview: two options are proposed - (i) the full nine-hour service as described above or (ii) a four-hour schedule broadcasting overnight between 02.00 and 06.00. The choice will be determined by the amount of available spectrum after digital switchover (DSO). Due to capacity constraints, the Executive would need to take down from Freeview BBC Parliament, BBC Four and three BBCi streams between the hours of 02.00 and 06.00 to create capacity for the overnight schedule in option (ii). This action is intended as an interim measure until spectrum capacity allows for the introduction of the nine-hour service on Freeview. The position would be re-evaluated if sufficient capacity did not become available. The Trust has considered whether anything in the withdrawal of these services constitutes a significant change to public services requiring a PVT. It has concluded that this is not the case, but nonetheless takes account of the public value foregone as part of this assessment. We have considered it appropriate to assess the nine-hour and four-hour services separately given their potential to deliver different degrees of public value and market impact. Similarly, the nine-hour service on Freeview has been assessed separately from the cable and satellite platforms – given the different costs and opportunity costs associated with broadcasting on DTT and the need to take into account the possibility that capacity constraints may delay or prevent the introduction of the nine-hour service on Freeview. We regard the nine-hour schedule, which covers peak-time and the other main viewing periods, as essentially a full channel proposition. Given this, as well as the BBC Executive’s wish to have flexibility to extend beyond the nine-hour schedule around live sport, music and national events, we have taken a broad view of the proposed service’s potential operating hours. 1.3 Our approach The Public Value Assessment has been undertaken in accordance with the Interim Rules for the Conduct of a Public Value Test published by the BBC Governance Unit on 10 October 2006 (available in full at bbc.co.uk/bbctrust). Certain departures from the Interim Rules have been made, arising from overriding obligations in the Charter and Framework Agreement. At the outset, the BBC Trust considered which aspects of public value might be relevant to the proposals. We concluded that these were likely to be: o quality and distinctiveness; o impact; o reach; and o cost and value for money. These are the factors identified as likely to be relevant in the Interim Rules. It should be noted, however, that we have departed from the Interim Rules in our treatment of the proposal's fit with the BBC’s public purposes. This is primarily assessed within impact rather than being treated as a separate driver of public value. However, fit with the BBC’s purposes is a prerequisite for any proposed service and as such is also considered separately as a first stage of analysis. We considered how the aspects of public value should be explored and evaluated. Designation as ‘Low’ indicates that we do not believe the proposals have any material impact on public value in this respect, ‘Medium’ indicates that the proposals have a material impact on public value and ‘High’ indicates that the proposals offer substantial public value. In coming to its conclusions on the public value of the proposals the BBC Trust drew on a wide range of evidence. This included: o evidence submitted by the BBC Executive; o additional research/independent advice commissioned by the Trust (included in Annexes [D] and [E]); o analysis undertaken by the BBC Trust Unit; and o representations from stakeholders (a list of respondents and a high level summary is included in Annexes [A] and [B]). This evidence is referred to and summarised throughout this PVA report. Summary of findings Our overall conclusion is that the service proposals will deliver a medium to high level of public value. It is the BBC Trust’s view that certain service conditions should be considered to safeguard the public value in the proposals put forward by the BBC Executive and to strive for even more public value. These service conditions, as outlined in section 11.3, deal only with public value. Conditions to mitigate any adverse market impact, if any, will be addressed in the MIA. 1.4 Strategy and fit with BBC Public Purposes Consumers will increasingly be exposed to HD through other entertainment products and will increasingly expect HD quality on television. The launch of a BBC HD channel would serve the BBC's digital purpose and would be relevant to promoting the other purposes in the long term. The DTT platform is integral to the BBC’s ability to deliver HD to as many licence fee payers as possible – in keeping with the principle of universality. The channel will be necessary to secure the future of free-to-view television on DTT in the longer term, but this impact should not be overstated in the short term. Consumers appear to value the quality of HD, but the cost of receiving it is likely to temper enthusiasm for the proposed service, at least until costs fall. Despite the cost of entry, a significant minority would be prepared to pay in order to access the service either now or within the next two years. What is more, the increasing penetration of HD-ready TVs and the increasing consumer exposure to HD through premium television services and other entertainment products, such as games and DVDs, is likely to increase consumer expectations and demand for HDTV services in the short-term. The Trust agrees that the BBC must maintain the relevance and appeal of its TV output as a precondition for the effective delivery of the BBC’s public purposes. While the proposed channel is unlikely to have any meaningful effect on the reach and consumption of BBC content in the short to medium term, it is likely to prove important in maintaining relevance and appeal in the longer term. The HD channel could play a significant role in promoting the BBC's digital purpose in the short to medium term. But it is unlikely to play such a role in promoting the other purposes in that time frame. We do not believe HD would be necessary to future-proof the DTT platform in the short term, as the DTT platform provides a different value proposition to consumers than cable or satellite. It would remain attractive to them without HD. However, in so far as HD will become a key broadcast standard, its position on DTT will be essential to that platform’s viability in the longer term. 1.5 Quality and distinctiveness We consider that the service proposals will deliver medium to high public value in terms of quality and distinctiveness, with some concerns about the public value of the restricted four-hour service on DTT. The quality assessment for the service as a whole was marked down. This is a function of the fact that the four-hour DTT service is seen as being limited in scope and difficult to access, although a pre-selected ‘best of’ service is seen as a positive asset. We would expect these concerns to reduce if the DTT service is extended to the full nine hours at DSO, with the range of content desirable to licence fee payers. The picture quality offered by HD is recognised and valued by licence fee payers, although sound quality is a less valued element of the HD experience. We see the proposals as distinct from commercial competitors and likely to remain so, being subscription-free and without advertising. The BBC HD channel also offers a broader genre mix than other currently available HD channels and the vast majority of its content will be sourced in the UK. In assessing the quality and distinctiveness of the service proposals we have discounted the underlying content per se (except in regards to the range offered in HD) and focused on the additional benefits of receiving the content in HD quality picture and sound. Over time, as HD becomes more of a ‘given’ expectation, we would expect this public value rating to decline. 1.6 Impact The BBC HD channel proposition as a whole should deliver medium consumer and citizen benefits in the short to medium term. However, as access to HD grows and constraints on the DTT service proposition lessen, the impact will become greater. We considered the impact of the services from both a consumer perspective and a citizen perspective. The proposed service provides an opportunity for all licence fee payers to access HD quality pictures without a subscription, something that audiences recognise as a benefit to them. The experience of HD (rather than the proposed service) is of greater benefit to consumers than to society in terms of its technical quality. However, as already noted, the proposed service would play a significant role in promoting the BBC’s digital public purpose of ‘helping to deliver to the public the benefit of emerging communications and services’. Launch of a BBC HD channel would help make a technology that has wide appeal universally available and thereby help stimulate the market. The proposed HDTV service was seen to have good relative worth compared to SD, suggesting the technical quality provided by the service would be of value to audiences. 1.7 Reach We consider the proposed service to deliver medium public value in terms of reach. Assuming the nine-hour service is provided on Freeview, the channel would reach 22 per cent of households – which compares favourably with other digital TV services. Reach of the proposed service is primarily driven by substitution from the originating SD programme, resulting in a neutral overall impact on reach for the BBC. Although viewing behaviour is not expected to change materially in the short to medium term, with viewing choice driven by content rather than HD’s technical quality, there is a potential risk to reach and share in the longer term if audiences come to expect HD and can access it readily elsewhere. The four-hour overnight DTT service would deliver medium to low reach. The unsociable broadcast time would result in minimal ‘live’ viewing. Most viewing would be expected from PVR-enabled households who can time shift their consumption. However, few households currently do this and the incentives provided by the limited four-hour service are unlikely to change this behaviour. In contrast, reach to the nine-hour service is considered medium- high, with greater content choice and peak time broadcasting contributing to higher levels of expected viewing. Provision of the channel on cable and pay-satellite would help maintain reach on these platforms, on which the BBC performs less strongly than on Freeview. Reach would be limited by the cost of access. Accordingly, we would expect the service’s potential reach to increase as the cost of set-top boxes fall. 1.8 Cost and value for money We consider that the service proposals will deliver high public value in terms of value for money. Non-DTT platforms represent better value for money than DTT since the distribution costs are much cheaper and there are no significant spectrum constraints. However, both the four-hour DTT proposition (which provides a cost effective entry for the DTT market at £1m per annum) and the nine-hour DTT service provide greater consumer value than the cost of providing each service. We considered the value for money of the proposals in two ways: calculating a payback period for the costs incurred; and analysing the value yield of each scenario over time. Both methods show that the proposals represent value for money for the licence fee payer. Our analysis assumes that the BBC will not have to pay for spectrum capacity in order to accommodate the channel on DTT. The BBC has already started the gradual transition from SD to HD, not only in production but also in the considerable infrastructure required to support HD in the future. This strategic direction has been taken in response to the growing number of independent production companies that are choosing to film in HD; to future-proof BBC content and infrastructure; ensure the longevity of the archive; and enable BBC Worldwide to meet the demands of its overseas consumers where HD is fast becoming the production standard. While this production strategy will complement an HD channel, it will happen, for the reasons stated above, regardless of whether the proposed service is approved or not. Licence fee payers are funding this HD strategy. We believe they should therefore feel a tangible benefit. While spectrum capacity constraints may limit the BBC’s ability to provide a consistent service across all platforms, the proposals represent a cost-efficient way of allowing viewers access to BBC HD content with minimum disruption to other services. 1.9 Other service considerations In considering the proposals we have questioned specific aspects of some of the service proposals. In particular we have considered the following: o Does the nine-hour service, as proposed, maximise possible public value? o Should the four-hour overnight service be available on non-DTT platforms? o Could or should the proposed service launch as a paid-for channel? o Is a separate broadcast channel the most appropriate method of providing an HD service? We concluded that: o There is the potential for greater public value – particularly in terms of value for money and perceptions of quality – to be delivered through a ‘best of’ nine-hour service, with a focus on genres that benefit the most from HD programming. However, there is a trade-off as such a service could draw some viewers away from other BBC channels with their broader genre output, thereby potentially undermining their promotion of the BBC’s public purposes. o There could be value to a small proportion of non-DTT viewers in having access to the four-hour overnight schedule in addition to the full nine-hour service. However, providing this would incur additional rights costs. o In principle, the proposed HD service could be provided as a paid-for rather than free-to-air service providing (i) HD does not become a significant broadcast format and (ii) the service is not funded by the licence fee payer. However, with HDTV expected to become widespread during the next 5-10 years and HD content and infrastructure already being funded by the licence fee, a paid-for service would fail on both counts. o Technical constraints mean that a separate channel is required for broadcast purposes. There is a question as to whether HD should be provided as a broadcast rather than an on-demand service. However, the importance of HD to television, combined with broadband bandwidth constraints, suggests that the broadcast route is appropriate. 1.10 Spectrum and potential reorganisation of the DTT platform The BBC Executive's application states that additional spectrum capacity would be required in order to provide the full nine-hour HD service on the DTT platform. We recognise the uncertainties about the ability to launch the nine-hour HD service within existing capacity. However, we have considered the possibility, subject to technological advances, that the nine-hour channel could be launched by 2012 or shortly thereafter within the BBC’s existing spectrum capacity. We are not requiring, at this stage, that existing capacity be used to support the proposed channel, so as not to constrain the BBC Executive’s options while the practicalities remain unclear. It is relevant that Ofcom has argued that it is possible to deliver a number of HD services on DTT on the current six DTT multiplexes, but that this requires reorganisation of the services on the existing multiplexes. Ofcom has released some of the analysis around a possible multiplex reorganisation, but has not as yet published any formal proposals for consultation. We regard Ofcom’s views constructively, although we are not providing a formal opinion on them in this document so as not to limit the Trust's and the BBC Executive's ability to contribute to any Ofcom consultation at a later stage. However, a multiplex reorganisation, if implemented, would have implications for the BBC’s proposed HD service on DTT. The proposed use of DVB-T2 technology, which is not expected to be available until 2009 at the earliest, means the BBC would either have to delay the implementation of HD on DTT service or require consumers to undergo two set-top box upgrades should they wish to access the service from mid-2008 (as they would be required to purchase MPEG-4 DVB-T HD set-top boxes in order to view the proposed service at this time). Given uncertainties over the route to providing the channel on DTT, we have considered whether we should delay our PVT consideration until the options are clear. Our view is that there is risk that delay could cause a considerable reduction to the public value identified in the PVA so far. Given that it would not be a viable alternative for the BBC Executive to submit staggered proposals for the DTT and non-DTT parts of the application, we conclude that our PVA consideration of all platforms should proceed. As proposed in the BBC Executive’s PVT application, the nine-hour service on DTT would not have launched until spectrum became available through DSO; the main impact of a possible multiplex reorganisation therefore concerns the four-hour overnight service. We considered two alternative launch scenarios and their impact on the public value assessment: (i) Multiplex reorganisation and introduction of DVB-T2 are implemented by 2009; (ii) Multiplex reorganisation and introduction of DVB-T2 are delayed until 2010 or later. Under scenario (i) we consider that there is relatively little public value in launching the proposed overnight service on DTT from mid 2008 (using DVB-T) and this would be outweighed by the consumer confusion caused by introducing HD set-top boxes that might need replacing relatively quickly. Under scenario (ii) we believe there may be greater value than under scenario (i) in launching the proposed four-hour overnight service on DTT (using DVB-T technology) from mid 2008 (ahead of the full nine-hour service roll out utilising DVB- T2). In the event of the service being approved, final authorisation of arrangements for launch on DTT should be subject to a review of options in early 2008. 1.11 Conclusions Overall we believe the proposals would deliver a medium to high level of public value. The proposed service would significantly promote the BBC’s public purpose of ‘helping to deliver to the public the benefit of emerging communications and services’. Entry by the BBC would provide a strong stimulus in helping a free to view HDTV market develop in the UK. It would also coalesce the market around the MPEG-4 standard, to the benefit of all consumers. There is value in launching the proposed service in the immediate future. Impact is one of the two key drivers. In addition to promoting the digital purpose, a significant minority would value the proposed service. Providing the service for this audience now would stimulate the market, increasing access and viability for other broadcasters and viewers alike. Value for money is the second key driver. As a relatively low cost service it would create high value for those benefiting from the service. The nine-hour service on DTT would be expected to deliver higher public value than the four-hour service on DTT and slightly higher value than the nine-hour service on non-DTT platforms, although a good level of public value would be expected from all three. There would be minimal public value forgone from the 02.00-06.00 closure of BBC Four, BBC Parliament and three BBCi streams on DTT. This is due to their limited reach. The overnight HD service would deliver a good level of public value leading us to believe there would be a net benefit from the proposed change. The proposed service would require a change to the BBC’s multiplex licence. Any PVT approval to launch the HD service would be conditional upon the necessary consent from Ofcom. In the event of service approval, certain service conditions should be considered to safeguard the public value in the proposals put forward by the BBC Executive and to strive for even more public value. These should cover the following: o launch on Sky and digital cable platforms from the PVT decision and Freesat from platform launch; o review likelihood of implementation and timescale of DTT reorganisation in early 2008. Through this determine the appropriateness or otherwise of launching a four- hour overnight service on DTT from mid-2008. This should be subject to Trust approval; o deliver an equivalent nine-hour service proposition on DTT to that on cable and satellite at the earliest opportunity. Implementation should be subject to Trust approval following a review of options in early 2008; o consider simulcasting other BBC channels and content between 19.30-22.00 and not just BBC One; o ensure compliance with BBC Parliament service licence and further commitments to Parliament; o review the service in 2012 to coincide with DSO. Notes on technical terms HDTV High definition television transmits more picture information and better quality sound than traditional standard definition television. This enables picture quality to be sharper and more immersive and the sound can be surround sound. 720p and 1080i Standard definition television pictures are made up of 576 horizontal lines refreshed at a rate of 25 times per second. The increased amount of picture information transmitted for HDTV means pictures are made up of more lines – i.e. there is a greater level of picture resolution. The accepted standards for HD picture resolution are currently 720p (720 progressive – 720 lines refreshed at 50 times per second) or 1080i (1080 interlaced – 1080 lines refreshed at 25 times per second). The BBC Executive’s application proposes to use both these standards. 1080p is also becoming available (1080 lines refreshed at 50 times per second). Multiplex A multiplex is a fixed 8MHz block of UHF spectrum which carries a bundle of digital television channels. One digital multiplex occupies the same amount of spectrum as a single analogue television channel. MPEG-2 and MPEG-4 Compression is used to encode a television channel for digital transmission. To reduce the volume of data that needs to be transmitted, and thereby fit more channels onto a multiplex, compression reduces the amount of information that needs to be sent from one second to the next. Information that is constant – e.g. a plain coloured background – can be reduced so that the capacity can be concentrated on changing information. The process by which this has been done hitherto is called MPEG-2. A new, more efficient process called MPEG-4 will be applied to HDTV services on satellite and DTT. Channels encoded in MPEG-2 and MPEG-4 can be transmitted on the same multiplex. But current DTT set-top boxes are capable of decoding only MPEG-2 services, so consumers would be required to upgrade their receiving equipment in order to receive HD channels in MPEG-4 alongside standard MPEG-2 services. DVB-T and DVB-T2 The technology by which a digital television signal is transmitted is referred to as modulation. The current standard is called DVB-T. A replacement, DVB-T2, is in development. This will allow more efficient use of spectrum capacity. DVB-T and DVB-T2 cannot be mixed on the same multiplex. Current DTT set-top boxes are compatible only with DVB-T, so consumers would need to upgrade their receiving equipment in order to view channels transmitted using DVB-T2. DVB-T2 is expected to be available by late 2009. 16 QAM and 64 QAM Digital multiplex transmission is subject to trade-offs between coverage, capacity and resilience to interference. This is referred to as the mode. At present, digital television is transmitted in the spectrum gaps between analogue television channels. So the BBC makes a cautious trade-off – at 16 QAM mode – between coverage, capacity and interference in order to ensure consumers receive a robust signal. As digital switchover proceeds, and interference from analogue channels ceases to be an issue, the BBC will convert its multiplexes to 64 QAM mode – enabling more channels to be carried in its capacity. A full glossary is provided at Annex F. 2. The service proposals Summary The BBC Executive wishes to launch a single, mixed-genre, linear, digital TV channel in high- definition (HD) format. Their intention is to launch the service on digital satellite, digital cable and digital terrestrial television (DTT or Freeview). There are two key variations within the proposal regarding these platforms: o Digital satellite and cable: the proposal is for a nine-hour service broadcasting from 15.00 to midnight, with some flexibility to extend beyond this to allow for the coverage of significant live sport or other events o Freeview: two options are proposed - (i) the full nine-hour service as described above or (ii) a four-hour schedule broadcasting overnight between 02.00 and 06.00. The choice will be determined by the amount of available spectrum after digital switchover (DSO). Due to capacity constraints, the Executive would need to take down from Freeview BBC Parliament, BBC Four and three BBCi streams between the hours of 02.00 and 06.00 to create capacity for the overnight schedule in option (ii). This action is intended as an interim measure until spectrum capacity allows for the introduction of the nine-hour service on Freeview. The position would be re-evaluated if sufficient capacity did not become available. The Trust has considered whether anything in the withdrawal of these services constitutes a significant change to public services requiring a PVT. It has concluded that this is not the case, but nonetheless takes account of the public value foregone as part of this assessment. We have considered it appropriate to assess the nine-hour and four-hour services separately given their potential to deliver different degrees of public value and market impact. Similarly, the nine-hour service on Freeview has been assessed separately from the cable and satellite platforms – given the different costs and opportunity costs associated with broadcasting on DTT and the need to take into account the possibility that capacity constraints may delay or prevent the introduction of the nine-hour service on Freeview. We regard the nine-hour schedule, which covers peak-time and the other main viewing periods, as essentially a full channel proposition. Given this, as well as the BBC Executive’s wish to have flexibility to extend beyond the nine-hour schedule around live sport, music and national events, we have taken a broad view of the proposed service’s potential operating hours.- 2.1 Approach Before undertaking an analysis of the public value of the proposed service, it is important to understand the terms and scope of the proposal. This is necessary to ensure consistency and robustness of evaluation across both the PVA and MIA and to provide certainty and clarity to the wider market, including stakeholders. To this end, the BBC Trust and Ofcom jointly sought clarification from the BBC Executive regarding a number of details contained in their HDTV application. This was provided through a series of question-and-answer sessions in which the BBC Executive provided us with additional information to that presented in their application. We have indicated in the PVA where information from the Executive provided in this way has been taken into account. The description contained here draws from the jointly published BBC Trust/Ofcom service description as published on 21 May 2007. This supersedes the description of the proposed HD channel provided in section 3 of the Executive’s application document. Below, we describe: o The proposition in summary o Platforms for the service o Content that would be broadcast o Schedule o Technical issues For each of these sections, we provide commentary on how we have approached the issues described for assessment. 2.2 Description of service (i) Proposition o The BBC Executive is applying for permission to provide a single, linear, digital TV channel in high-definition (HD) format. o It would be a mixed-genre channel, drawing from content across the BBC’s channels. The channel would be available free-to-view, and would carry no advertising. o The BBC 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. o The intention is to make the HD channel available on digital satellite, digital cable and digital terrestrial television (DTT, which we also refer to as Freeview)1. As technology allows and subject to value for money considerations, the BBC may also make the channel, or content from it, available on the internet or through IPTV providers. o The BBC Executive has identified two options for Freeview: the full nine-hour schedule or a four-hour schedule overnight between 02.00 and 06.00. o The full nine-hour schedule would be offered on Freeview if sufficient spectrum capacity were available after digital switchover. o The four-hour overnight schedule would be offered ahead of digital switchover and possibly after switchover if insufficient spectrum capacity were available during the transmission hours of the nine-hour schedule. However, it is also possible that the BBC Executive may review its options for providing HD on Freeview if sufficient spectrum were not available after switchover. o 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 02.00 and 06.00: • 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).2 o Under the option where sufficient spectrum capacity becomes available following digital switchover, the four-hour overnight schedule on Freeview would be replaced by the same nine-hour service as provided over the cable and satellite platforms. This would happen as digital switchover proceeds region by region. Full national coverage would be achieved on completion of digital switchover in 2012. Where the four-hour overnight schedule is replaced by the nine-hour schedule the suspended services on Freeview would resume. Comment We consider it appropriate to assess the nine-hour and four-hour services separately given their potential to deliver different degrees of public value and market impact. Similarly, the nine-hour service on Freeview has been assessed separately to the cable and satellite platforms given the different costs and opportunity costs associated with broadcasting on the platform. However, we have borne in mind the proposal to replace the four-hour overnight service on Freeview with the nine-hour service. 1 Freeview refers to the bundle of free-to-view channels collectively marketed under the Freeview brand. DTT refers to the digital television platform as a whole which comprises six multiplexes broadcasting both free- to-view and pay-TV channels. 2 For the avoidance of doubt, BBC News 24 would not be affected. 3 Commitment provided by the BBC Director of Continuous News in evidence to the House of Commons Broadcasting Committee in 1998. The proposed withdrawal of some existing services from Freeview between 02.00 and 06.00 raises issues about the public value that would be foregone in order to provide capacity for the overnight four-hour service. So for context, we provide more detail on the affected services, drawing on a clarification provided by the BBC Executive: o BBC Parliament broadcasts through the night, while BBC Four stops broadcasting at 04.00. Both channels mainly broadcast repeats during this period. o The two BBCi interactive video streams that would be withdrawn offer either content that is available for a number of days, such as music sessions related to radio programming, or content available for much shorter periods as an extension of linear programmes, such as the broadcast of extra courts for Wimbledon. In either case, it is unlikely that any content would be available only during the impacted time period. It should also be noted that the capacity for these interactive streams is not always in use during this time. o The BBCi interactive news loop is broadcast 24/7, and would be re-instated in the event of major breaking news stories. With specific regard to BBC Parliament, the BBC Executive has provided a commitment to (i) broadcast continuous live coverage of the House of Commons; and (ii) broadcast all proceedings in House of Lords, though not necessarily live. 3 These commitments are reflected in BBC Parliament’s service licence, which requires '..gavel-to-gavel coverage of the Westminster Parliament, including uninterrupted debates from both Houses'. The BBC Executive proposes to meet its commitment to live coverage of the Commons by reinstating BBC Parliament when necessary. This would include any occasion where the House sits beyond 02.00. Accordingly the BBC Executive would not be in breach of the commitment given to Parliament or the terms of its Service Licence. The BBC Executive has also advised us that its commitment to gavel-to-gavel coverage of the Lords would not be affected. Current screenings between 02.00 and 06.00 of Friday sittings would be rescheduled and on occasions when the Lords were sitting beyond 02.00, BBC Parliament would be reinstated on Freeview where coverage was deemed essential. The Trust has considered whether anything in the withdrawal of these services from Freeview would constitute a significant change to a public service requiring a PVT to be applied. It concluded that in no case were the proposals materially sufficient to constitute a significant change – particularly, given the assurances that BBC Parliament would continue to meet its service licence obligations. Nonetheless, we take account of the public value foregone as part of the evaluation of this proposal. It should be noted that the proposed changes to services would also be subject to a separate Ofcom process. The DTT multiplex on which the BBC transmits the channels is licensed by Ofcom; an application to Ofcom for a variation of the multiplex licence would therefore be required by the BBC Executive. 4 Provided for by the Trust's Statement of Policy on Fair Trading and On-Demand Syndication Policy. (ii) Platforms o The BBC Executive wishes to make the new HDTV channel available on as many digital television platforms as is feasible. These are expected to include satellite, cable, DTT and (as technology allows) IPTV. It is unlikely to be practicable in the near future to offer the channel over mobile phone networks. o Any commercial agreements covering such arrangements would be subject to objective, proportionate and non-discriminatory criteria4. The BBC Executive would also be guided by the requirements of the BBC's public purposes – for example, to ensure that the BBC maximises reach and provides a sufficiently high quality offering while securing value for money. o If the proposition were to be approved by the BBC Trust, the timescales for offering the channel on different platforms would be broadly as follows: • Sky and digital cable – from the date of a positive PVT decision, converting the existing trial into an ongoing service. The PVT decision is expected by November 2007; • Freesat – from platform launch, anticipated in 2008; • Freeview – from mid-2008. These expected timescales are subject to the considerations addressed in Section 10. o The satellite channel would be transmitted unencrypted, so it would be available free and without subscription through Sky’s free satellite service as well as through Freesat. o In principle, the BBC Executive is prepared to make the service available through internet protocol TV providers. Examples of internet protocol TV providers include BT Vision or Tiscali. The timing of launch of the service on such platforms would be dependent on external factors (e.g. developments in broadband access infrastructure), and cannot be predicted at this time. o The BBC Executive may also offer the channel on the open internet through bbc.co.uk, if and when there is judged to be sufficient audience demand and it is technically feasible to do so. This would be through the BBC iPlayer and could entail both simulcast streaming of the channel and also downloads and/or streams of HD programmes for catch-up viewing on-demand. Programmes offered for catch-up would be subject to the same time-based restrictions on viewing as have recently been approved for the BBC’s on-demand offering. Any further syndication of that content to third parties would be subject to the Trust’s on-demand syndication policy and the BBC's syndication guidelines. Comment It is too early to consider the impact of IPTV on the proposition (and the internet is not seen at present as a delivery option for the channel by the BBC Executive) although it could become more important in future. There are two potential ways of consuming IPTV content via third parties (i.e. outside of BBC iPlayer). The first is through on-demand, as offered by BT Vision, and the second is through a linear service, as provided by Tiscali (previously Homechoice), although providers may also offer both. Governance provisions are in place to regulate the provision of BBC services through IPTV via third parties. On- demand is covered by the BBC Trust’s syndication rules, developed following the Trust’s approval of the BBC’s on-demand service, whilst linear services would be handled as part of the BBC’s normal distribution arrangements. Accordingly, any future provision of the proposed service through IPTV may be covered by existing approvals; however, a definitive view on this would depend upon the precise nature of any eventual IPTV proposition. (iii) Content o The BBC HD channel would be a mixed-genre service. Its aim, as far as possible, would be to showcase programmes produced in HD from the schedules of other BBC channels. These would be produced in HD end-to-end, not converted from standard definition (SD). Any individual programme may contain up to 25 per cent of non-HD material converted from SD – for example, archive shots in a documentary. o 95 per cent or more of the content would be HD versions of programmes broadcast in SD on other BBC channels. o Up to 5 per cent of the content could be programming commissioned for the channel itself. This would largely comprise short items repurposed from existing series, such as are commonly used to fill gaps between programmes. o The content mix would change over time, as more HD content becomes available. At launch, the mix would reflect the BBC programming that is currently available in HD. These would typically be high impact programmes in genres that particularly benefit from the HD format – mainly factual (such as natural history) and drama plus some arts and music, children’s, factual entertainment and live events and sport. o As more HD content becomes available, the content mix would become more representative of BBC television as a whole – including programmes that reach large audiences, such as EastEnders, Casualty and Holby City. o By the time the full nine-hour schedule is achieved, content would come from across the BBC’s portfolio of television channels. Approximately half the content would come from BBC One, 30 per cent from BBC Two and the rest from BBC Three, BBC Four, CBBC and CBeebies. The aim is for the bulk of the peak time schedule to be simulcast BBC One programmes. Programmes from BBC Two would be simulcast where the schedule allows. Programmes would not be shown on the HD channel before their transmission on the originating channel, except in the case of the four-hour overnight schedule on Freeview (which would preview the following evening’s output on other channels). o First-run showings of sport and acquired film would generally not exceed 20 per cent of the content. Repeat showings of sport and acquired film would be limited to occasional narrative or archive repeats of, for example, major sporting events. In years when there are big, infrequently occurring international tournaments (including the Olympics or the World Cup but not annual events such as Wimbledon) the 20 per cent threshold may be breached. On average, this could be expected to happen every other year. o No sports content or films would be acquired solely for broadcast on the channel. While the channel would show mainly UK-produced programmes, acquired films could come from overseas. o As the channel evolves, about 30 per cent of the content would be repeats. These would be either archive repeats or narrative repeats. Archive repeats are programmes drawn from the archives, which for HD productions do not go back many years. Narrative repeats are programmes that would be shown several times for catch-up viewing in the period immediately after initial transmission. As the volume of available HD programming increases, the proportion of archive and narrative repeats could be expected to reduce. Comment We note that the BBC Executive proposes that, in due course, the content broadcast in peak-time would be primarily simulcast BBC One programmes rather than programmes that specifically benefit the most from HD broadcasting. We explore the public value of this approach in section 9. (iv) Schedule From launch, the service would be offered for three to four-hours a day. This would build to nine hours (15.00 to midnight) by the end of 2008. Indicative schedules are shown below. Proposed BBC HD channel Indicative four-hour weekday schedule for 2007/08 Monday Tuesday Wednesday Friday 1900 Family Comedy Lifestyle/Leisure Children's 1930 Family Drama 2000 Factual 2030 2100 Post-watershed Drama Comedy 2130 Film/Acquisition 2200 Landmark Factual Music/Arts 2230 Archive Thursday Comedy Proposed BBC HD channel Indicative nine-hour weekday schedule, 2009 (R = repeat; S/C = simulcast) o There would be some flexibility to extend beyond the normal scheduled hours for the broadcast of live sport, music and national events. Such extensions could range from a short addition to the end of the schedule at night, to allow for the overrun of an event, to comprehensive extensions which would be applied only during the period of major tournaments such as the Olympics. The four-hour overnight schedule on Freeview would never expand beyond its scheduled hours. Time Channel Monday Tuesday Wednesday Thursday Friday 1500 Children’s Best of CBBC 1530 Children’s Children's Drama and Factual 1600 BBC TWO Best of Pre-watershed Factual Archive/catch-up 1630 BBC TWO e.g. Coast, Who Do You Think You Are Palin Dragons’ Den 1700 BBC TWO Best of Lifestyle/Leisure e.g. Holiday, Rick Stein Food, Gardeners’ World Archive/catch-up 1730 BBC TWO Top Gear 1800 BBC ONE/ TWO Pre-watershed Drama and Comedy Archive/catch-up 1830 BBC ONE/ TWO e.g. Robin Hood, Holby, Judge John Deed 1900 BBC ONE NE One Show One Show One Show One Show One Show 1930 BBC ONE Factual EastEnders Leisure EastEnders Factual Entertainment 2000 BBC ONE EastEnders Holby Match of the Day Live Drama EastEnders 2030 BBC ONE Panorama Holby e.g. Judge John Deed Factual Entertainment 2100 BBC ONE Drama e.g. Spooks, Drama e.g. Drama e.g. Comedy 2130 BBC ONE Silent Witness Mrs Pritchard State Within Comedy 2200 Archive/catch-up repeat Archive/catch- up Archive-catch- up Archive/catch- up Archive/catch- up 2230 BBC THREE/ FOUR Post-watershed Drama from BBC THREE and FOUR Jonathan Ross 2300 BBC THREE/ FOUR Torchwood Fear of Fanny Sinchronicity Chatterley Affair 2330 BBC TWO/ THREE/FOUR Comedy and Music from BBC TWO, THREE, FOUR 2400 BBC TWO/ THREE/FOUR BBC Sessions Lead Balloon Electric Proms Mitchell and Webb Later…with Jools 5 As an industry leader in radio and television production and broadcast, the BBC takes a key role in helping to develop and agree technical standards. The BBC contributes to standards development work with standards bodies in advance of developing any service proposals, regardless of whether the BBC might launch services using such technologies. Technical standards development typically takes several years and therefore would take place in advance of any potential service launch. The BBC is therefore unable to restrict its contribution to standardisation work to those areas where it feels it is likely to launch a service. 6 MPEG-4 high profile level 4 describes the broadcast profile of MPEG-4 (for example stipulating that the maximum broadcast bitrate is 25 Mbps), as opposed to the profile used for video delivery to mobile hand sets. o Outside of the scheduled hours, a promotional loop for the channel would be shown on satellite and cable. This would not be shown on Freeview. o In the option of a limited-hours overnight service on Freeview, this would show programmes in advance of the following evening’s schedule (subject to rights clearances). By way of example, a new episode of Torchwood, to be broadcast on BBC Two (and on the HD channel on satellite and cable) on a Sunday evening, could be shown on the overnight Freeview service on the immediately preceding Sunday morning. This would allow Freeview viewers with the necessary equipment to record the programme in HD in advance, and – if they chose to do so – to watch the recorded HD programme at the same time that it is available in HD to audiences on other platforms. Comment We regard the nine-hour schedule, which covers peak-time and the other main viewing periods, as essentially a full channel proposition since it covers the hours when people mostly watch television. Given this, as well as the BBC Executive’s wish to have flexibility to extend beyond the nine-hour schedule, we have taken a broad view of the proposed service’s potential operating hours. (v) Technical issues o Technology for high-definition television is evolving rapidly. Discussions are proceeding in the industry to agree transmission standards. The BBC is participating in these.5 o The channel would be encoded in MPEG-4 high profile level 46 for satellite and Freeview and MPEG-2 for cable. The BBC is working with equipment manufacturers and broadcasters (as part of the Digital Television Group) to ensure that MPEG-4 profiles are adopted in such a way as to ensure that the BBC’s proposed HD channel can be accessed via a wide range of set-top boxes. o The BBC Executive expects that it might use spectrum capacity of up to 15 megabits per second (Mb/s) to provide the HD channel on Freeview in the first instance. As compression technology improves, the BBC Executive says that it should be possible to carry the channel on Freeview within 12 Mb/s. o The picture resolution would be in line with the internationally recognised EICTA HD-ready standard, which currently specifies either 1080i (i.e. 1,080 lines interlaced) or 720p (i.e. 720 lines progressive). On each platform, the channel would operate at the specification that is judged to offer the best balance between picture quality and the efficient use of capacity. o To receive the BBC HD channel, viewers would need an HD-ready television screen and an HD-capable receiver (either a set-top box or a tuner integrated into the television set). That is to say, it is not sufficient simply to have an HD-ready TV screen. For every platform, consumers will incur costs upgrading their receiving equipment from standard definition to high definition capability. These costs are likely to be incurred as a one-off purchase price or a monthly fee. This applies even to viewers who use existing HD-ready integrated Freeview televisions. These would also require a set-top box, since they do not decode signals in MPEG-4. o If the BBC were able to offer only a four-hour overnight schedule on Freeview, it is likely that consumers intending to access the service would want to install an HD- capable personal video recorder (PVR) in order to record the programmes when broadcast, and view them later at convenient times. The BBC would transmit the overnight Freeview schedule as a normal linear broadcast – viewers would be able to watch the service live if they wanted, and to record whatever elements of the broadcast they choose. Comment The provision of HD programming in MPEG-4 on DTT would be subject to a regulatory process by Ofcom. It would require a change to the technical code to which multiplex licences are subject. The spectrum capacity required to provide the HD channel on Freeview can be expected to reduce as compression technology improves. This is explored further in section 10. As the required capacity for the service declines so too should the proposed service’s impact on other BBC services. However, in the meantime the BBC Executive is committed to either taking down the proposed HD service or temporarily reducing its capacity where it is essential to broadcast an interactive news loop or BBC Parliament. These circumstances could include major events, breaking news or a late sitting in the House of Commons. 3. Our approach Summary The Public Value Assessment has been undertaken in accordance with the Interim Rules for the Conduct of a Public Value Test published by the BBC Governance Unit on 10 October 2006 (available in full at bbc.co.uk/bbctrust). Certain departures from the Interim Rules have been made, arising from overriding obligations in the Charter and Framework Agreement. At the outset, the BBC Trust considered which aspects of public value might be relevant to the proposals. We concluded that these were likely to be: o quality and distinctiveness; o impact; o reach; and o cost and value for money. These are the factors identified as likely to be relevant in the Interim Rules. It should be noted, however, that we have departed from the Interim Rules in our treatment of the proposal's fit with the BBC’s public purposes. This is primarily assessed within impact rather than being treated as a separate driver of public value. However, fit with the BBC’s purposes is a prerequisite for any proposed service and as such is also considered separately as a first stage of analysis. We considered how the aspects of public value should be explored and evaluated. Designation as ‘Low’ indicates that we do not believe the proposals have any material impact on public value in this respect, ‘Medium’ indicates that the proposals have a material impact on public value and ‘High’ indicates that the proposals offer substantial public value. In coming to its conclusions on the public value of the proposals the BBC Trust drew on a wide range of evidence. This included: o evidence submitted by the BBC Executive; o additional research/independent advice commissioned by the Trust (included in Annexes [D] and [E]); o analysis undertaken by the BBC Trust Unit; and o representations from stakeholders (a list of respondents and a high level summary is included in Annexes [A] and [B]). This evidence is referred to and summarised throughout this PVA report. 3.1 The Public Value Test 3.1.1 Background The Public Value Test (PVT) is a key component of the BBC’s new system of governance which took effect with the new Charter and Agreement on 1 January 2007. The Charter makes clear that the BBC should be able to alter its UK public services – for example to respond to changes in technology, culture, market conditions and public expectations. However, any significant service-related proposals for change from the BBC Executive, including proposed new services, must be subject to full and proper scrutiny. The means by which this scrutiny takes place prior to approval is the PVT. The Trust considers the BBC Executive’s proposed HDTV service to be a significant new service and has, accordingly, subjected it to a PVT. 3.1.2 The PVT process There are two components to the Public Value Test: o the Public Value Assessment (PVA), which assesses the public value expected to be created by a service (see 3.2 below); and o the Market Impact Assessment (MIA), which assesses the likely impact on existing or potential value created in the wider market as a result of the new service. The MIA has been carried out by Ofcom in accordance with the methodology agreed between Ofcom and the Trust, through the Joint Steering Group. The MIA report will be available at Ofcom's website (ofcom.org.uk). Following receipt of the MIA from Ofcom, the Trust will then evaluate whether any likely adverse impact on the market is justified by the likely public value of the change (section 26(6) of the Framework Agreement). It will form an initial judgment on the HDTV proposal, taking into account all its other legal duties including the general duties in Article 23 of the Charter. The Trust will publish these provisional conclusions at its website (bbc.co.uk/bbctrust) and will consult on them. 7 PSB Broadcasters’ HD trial results (available on the BBC Trust website: http://www.bbc.co.uk/bbctrust/framework/public_value_test/current_proposals.html) 8 Human Capital HDTV deliberative research (available on the BBC Trust website: http://www.bbc.co.uk/bbctrust/framework/public_value_test/current_proposals.html) Diagrammatical representation of the PVT The Trust is conducting this PVT in accordance with the Interim Rules for the Conduct of a Public Value Test published by the BBC Governance Unit on 10 October 2006 (available at bbc.co.uk/bbctrust). Certain departures from the Interim Rules have been made where noted below and for the reasons described below, arising from overriding obligations in the Charter and Framework Agreement. 3.2 The Public Value Assessment 3.2.1 Evidence for assessment In coming to our assessment of public value we drew on evidence from a variety of sources. From the BBC Executive In summer 2006, the BBC Executive provided the Governance Unit with a service proposal for HDTV and terms of reference for their proposed evidence in support of that proposal. Following Governance Unit approval of the Terms of Reference, the BBC Executive gathered the appropriate evidence specified by the Governance Unit. This evidence was formally received by the Trust Unit in March 2007. The BBC Executive’s evidence included a variety of analyses supported by specific consumer research, both quantitative and qualitative. All the evidence submitted was considered by the Trust, but given the nature of HD as a relative new consumer technology, particular attention was paid to the evidence based on those who had experienced HD. The Executive’s primary consumer evidence was driven by: o trials:7 participants in the BBC’s HD trial completed public value questionnaires (addressing reach, quality, impact and value) whilst participants in the PSB Broadcasters’ HD trial responded to questions addressing their experiences more generally. o deliberative jury:8 participants provided views on the principle of the BBC providing HD channels, rather than the HD channel proposition itself. From the general public and industry The BBC Trust Unit also sought representations from the general public and industry in relation to public value. The Trust received 17 responses from industry and organisation stakeholders. The Trust Unit also received 731 responses from members of the public. These responses have been used to inform the PVA. A list of respondents, excluding those from the general public, is shown in Annex [A]. An anonymised summary of the representations is set out in Annex [B]. In addition to written responses, the Trust Unit conducted a series of meetings with stakeholders to gain further insight as to their views on the BBC Executive’s proposals and the HD market more generally. From the Trust Unit’s own analysis Following a preliminary assessment of the evidence submitted by the BBC Executive, the Trust Unit undertook a series of interviews with the BBC Executive for the purposes of: o scrutinising the evidence base; o questioning the underlying assumptions and assertions; and o requesting further evidence from the BBC Executive as deemed appropriate by the Trust Unit. Third party evidence was also sought, as appropriate, to validate or otherwise comment on the BBC Executive’s evidence, assumptions and assertions. The evidence relied on is described below. From additional research commissioned by the Trust Unit As noted above, the BBC Executive’s primary evidence, based on those who had experienced HD, was driven by trials and the deliberative jury. Although credible and reliable, the research (amongst this set) was felt to have a number of limitations. The BBC HD trial was necessarily conducted amongst early adopters, causing it to be male-skewed and focused on technology rich households, whilst the deliberative research, although representative of licence fee payers as a whole, focused on attitudes to HD generally and respondents' views of the five PSB channels in HD rather than the BBC’s specific proposals. Accordingly, the Trust Unit commissioned BMRB to conduct further research to supplement that provided by the BBC Executive. This research, qualitative in nature, sought to consider the views of a broader cross-section of licence fee payers to the idea of a single HD channel, thereby helping to evaluate the public value of the proposed service. In order to clarify points within the BMRB report, the Trust Unit also entered into discussions with the agency. The Trust Unit also sought independent expert technical advice. Sagentia was engaged to provide further insight into spectrum capacity issues, particularly in relation to the DTT platform, with such issues being central to elements of the underlying proposition. In particular, Sagentia was asked to: o consider compression rates, how they may vary over time and what this might mean for HDTV provision; o advise on capacity post digital switchover for HD provision by the PSBs, including an assessment of the additional capacity required; o advise on the ability (or otherwise) of the BBC to transmit one-off events in HD; and o provide an overall assessment of standards, including a view on whether HD is likely to become the next broadcast standard and similarly whether MPEG-4 is likely to become the new codec standard, the factors that may enable this to happen and when. The reports from both the BMRB and Sagentia are included in Annex [E] and [D]. We have taken into account aspects of those reports as set out in the PVA. 3.2.2 Sharing information with Ofcom Throughout this process, the Trust and Ofcom discussed what was being assessed during the parallel market impact and public value assessments, while always being aware of the different roles each was performing. Information was shared between Ofcom and the Trust and vice versa, except where submitted in confidence or where otherwise overtly commercially sensitive, in order to ensure that the PVA and MIA were conducted on the same factual basis. It should be noted that the Framework Agreement specifically established the joint BBC Trust/Ofcom group (the Joint Steering Group) to ensure that the MIA is conducted in a manner appropriate to the PVT and to a suitable schedule. The BBC Trust’s conclusions on this PVA have been developed independently, without the input of Ofcom. 3.2.3 Assessment approach The purpose of the PVA is to ascertain the likely public value of the proposed new service. As a general approach, public value is primarily assessed over a five year period; it is invidious to forecast beyond that time given the increasing uncertainty, in scale and scope, of factors that could potentially affect the public value of any proposed service. In order to recognise the full value of a proposed service, factors beyond this period may need to be taken into account. This is particularly pertinent to this PVA where the long term value of the proposal is significant, but in considering this value we have also taken account of the uncertainties inherent in this approach. As an initial stage of analysis, we consider whether a proposal fits with the BBC's public purposes. It is a prerequisite of any approval that a proposed service should further the services in some way. The public purposes are: o sustaining citizenship and civil society; o promoting education and learning; o stimulating creativity and cultural excellence; o reflecting the UK's nations, regions and communities; o bringing the UK to the world and the world to the UK; o delivering to the public the benefit of emerging communications technologies and services (the digital purpose). In relation to the present proposals, the BBC Trust considers that there are four key drivers of public value: quality, impact, reach, and cost and value for money. These key drivers take the same approach as those identified as likely to be relevant in the Interim Rules. Fit with public purposes is assessed within impact. This is a departure from the Interim Rules. However, fit with the BBC’s purposes has also been considered separately ahead of the reach, quality, impact and value analysis. PVA – Fit with public purposes and the drivers of Public Value Fit with purposes Quality & distinctiveness Reach Cost & value for money Which public purposes does the proposal address and how does it fit with the BBC’s strategy? Is the proposal high quality and distinctive? The following table sets out the drivers of public value. Impact Will the proposal create consumer and citizen benefit (i.e. for society as a whole)? How far will the proposal extend the BBC’s reach and usage, particularly for under-served audiences? How much will the proposal cost to deliver and will it provide good value for money? In our assessment of these drivers we have considered the relative strength with which the proposals support achievement of the aspect of public value in question. Designation as ‘Low’ indicates that we do not believe the proposals have any material impact on public value in this respect, ‘Medium’ indicates that the proposals have a material impact on public value and ‘High’ indicates that the proposals offer substantial public value of the type described. The relative importance of these will vary across different services. Our overall assessment in each case was weighted by the significance of each driver for the service in question. The following table summarises the weight attached to the four drivers of public value for this PVA. PVA – Summary of weight of drivers of public value Impact Reach Cost & value for money Important but not itself determinative of overall approval. Very important but low weighting. Quality and Distinctiveness are minimum requirements for all BBC services. Providing this ‘minimum’ is met the driver is attributed a lower weighting in the overall evaluation. Less important, with a service not aimed at increasing reach or consumption (in the short-term). Quality & distinctiveness Prerequisite for approval. We weighted impact more heavily. The key purpose that the service would promote is the BBC's digital purpose, which flows through most strongly to impact. Quality and distinctiveness are key requirements for any proposed BBC service; however, their ubiquitous importance results in a lower weighting as long as quality thresholds are met. Reach received a low weighting with a service such as the one proposed not aimed at increasing reach and consumption, at least for the period under consideration in this PVA. Value for money is seen as a prerequisite for approval, with any delivery of public value required to come at a sensible price. An analysis of each of these drivers of public value is set out in sections 5–8 of this report. In section 11 we pull the different analyses together for each service element and come to our conclusion on its public value. 9 Article 12.1 of the Agreement states that ‘The BBC must do all that is reasonably practicable to ensure that viewers, listeners and other users (as the case may be) are able to access the UK Public Services that are intended for them, or elements of their content, in a range of convenient and cost effective ways which are available or might become available in the future…..’ 4. Strategy and fit with BBC’s public purposes Summary Consumers will increasingly be exposed to HD through other entertainment products and will increasingly expect HD quality on television. The launch of a BBC HD channel would serve the BBC's digital purpose and would be relevant to promoting the other purposes in the long term. The DTT platform is integral to the BBC’s ability to deliver HD to as many licence fee payers as possible – in keeping with the principle of universality. The channel will be necessary to secure the future of free-to-view television on DTT in the longer term, but this impact should not be overstated in the short term. Consumers appear to value the quality of HD, but the cost of receiving it is likely to temper enthusiasm for the proposed service, at least until costs fall. Despite the cost of entry, a significant minority would be prepared to pay in order to access the service either now or within the next two years. What is more, the increasing penetration of HD-ready TVs and the increasing consumer exposure to HD through premium television services and other entertainment products, such as games and DVDs, is likely to increase consumer expectations and demand for HDTV services in the short-term. The Trust agrees that the BBC must maintain the relevance and appeal of its TV output as a precondition for the effective delivery of the BBC’s public purposes. While the proposed channel is unlikely to have any meaningful effect on the reach and consumption of BBC content in the short to medium term, it is likely to prove important in maintaining relevance and appeal in the longer term. The HD channel could play a significant role in promoting the BBC's digital purpose in the short to medium term. But it is unlikely to play such a role in promoting the other purposes in that time frame. We do not believe HD would be necessary to future-proof the DTT platform in the short term, as the DTT platform provides a different value proposition to consumers than cable or satellite. It would remain attractive to them without HD. However, in so far as HD will become a key broadcast standard, its position on DTT will be essential to that platform’s viability in the longer term. In this section we consider the BBC Executive's proposal as a key part of its strategy to deliver its public service mission, which includes the requirement that the BBC makes its content universally available in so far as this is practicable.9 In seeking approval to launch the service it asserts that: 1. The proposed service is necessary to meet audience expectations of quality. 2. It will effectively promote the BBC’s public purposes and is necessary for their effective promotion in the future. 3. If launched, the proposed service will be made universally available on all available TV platforms. 4. The proposed service will provide a significant contribution to future-proofing free- to-view television on the DTT platform, so underpinning the principle of universality. This section considers the evidence to support the points made by the BBC Executive. 4.1. Is the proposed HDTV channel necessary to meet audience expectations of quality? The Trust's view is that consumers will increasingly be exposed to HD through other entertainment products and will increasingly expect HD quality on television. The BBC Executive application states that the “proposed HD channel is central to the BBC’s strategy for meeting audiences’ expectations of quality, thereby maximising the satisfaction that they derive from the BBC and that ….a significant proportion of licence fee payers will come to attach value to HD functionality (technical quality) and expect it in return for their licence fee..” In this section we consider evidence of three trends: 1. Consumers value HDTV 2. Penetration of HDTV sets is increasing 3. Exposure to the HD format is increasing 1. Consumers value HDTV Consumers appear to value the quality of HD. But the cost of acquiring HD equipment in order to receive it is likely to temper enthusiasm, at least until costs fall. Research provided by the Executive suggests consumers value HD channels 15-20 per cent more than SD channels (see section 6). The BMRB research for the Trust showed that, while people were generally satisfied with the technical quality of SD, they expressed very positive views on the quality of HD – including an increased appetite to receive it amongst those exposed to it for the first time. Evidence from the BBC HD trial suggests that although this ‘wow’ factor wears off over time, there remains a high level of residual satisfaction from HDTV viewers. The BMRB research highlighted that cost was a significant barrier to getting HD, with many respondents likely to wait a few years for the entry costs, i.e. the cost of the necessary HD set-top box, to come down (see section 6). But even at a cost of £200, around a third of the respondents would be interested in receiving the BBC’s HD service, either now or within the next two years. 10 Sky charges an additional £10/month; Virgin charges a premium for its V+ service, through which HD is accessed. 11 292,000 subscribers, Q2, 2007: BSkyB final results announcement, 27 July 2007 12 Sparkler Research (http://www.bbc.co.uk/bbctrust/). Although commissioned as part of the on-demand PVT, we consider we have taken into account that research on this specific topic in this PVT 2. Penetration of HDTV sets is increasing Sales of HD-ready TV sets have risen sharply in the last 18 months and since mid-2006, over half of all high-end TV set sales have been HD-ready. In anticipation of demand, manufacturers have converted production lines to HD and the price premium is for HD sets is coming down. This will further encourage take-up. As we note in section 7, there are grounds for scepticism that this take-up of HD-ready TV sets represents demand for HDTV services. Nonetheless, the increasing penetration of HDTV sets can only fuel consumer expectations of being able to receive HDTV services in the near future. With more than 11 million households forecast to have HD-ready TVs by 2010, consumers may feel disappointed if no free-to-view services become available, particularly if HD is made increasingly available on pay services (see section iii below). Some of this disappointment would inevitably be directed at the BBC, given its position as a publicly funded broadcaster. 3. Exposure to the HD format is increasing Consumers are becoming increasingly exposed to HD and its higher technical quality through premium television services and other entertainment products. We believe that this is likely to increase the demand for HD services. Since 2006, UK audiences have been able to watch HDTV services. Sky offers a number of channels in HD and, on cable, Virgin Media offers HD services mainly through the availability of on-demand HD content. Both companies provide these services as a premium offering to their SD services.10 Although launched a little over a year ago, Sky has attracted close to 300,000 subscribers to its HD service11. Consumers are also increasingly being exposed to HD through: HD DVD and Blu-Ray Disc formats; games consoles, including the Xbox 360 and Sony PS3; and an increasing number of home video cameras. Such trends are likely to fuel demand both for HDTV sets purchases and for viewed content generally to be available in HD. In such an environment there could be risks for the BBC in not having an HD service. The BBC Executive submit that licence fee payers expect the BBC to be a quality benchmark for UK broadcasting, and the Trust’s earlier research for the on-demand service confirmed this view.12 Although there is evidence to support the view that a BBC HD proposition may be necessary to meet audience expectations of quality, there are some important caveats to be considered. Opportunity cost considerations are material to audiences. Respondents in the BMRB research said they would rather the BBC’s investment was directed into new programming than the proposed HD channel. The deliberative research undertaken by Human Capital also noted that Sky and cable households were more interested in HD than Freeview households, with the latter preferring more SD channels to HD generally. Some evidence on the strength of consumers’ expectations should also be treated with caution. The BBC Executive draws on a figure of 87 per cent of respondents in the BBC/Gfk research expecting HD content from the BBC in future. It is not clear whether this expectation is a reflection of active demand for HD content or rather a passive expectation that it is the kind of thing the BBC will do. However, we do not believe these considerations undermine the force of the trends driving expectations and demand for HD noted above. 4.2 Will the proposed service effectively promote the BBC’s public purposes and is it necessary for their effective promotion in the future? The Trust's view is that the launch of a BBC HD channel would serve the BBC's digital purpose and would be relevant to promoting the other purposes in the long term. The Executive’s application maintains that: 1. The HD channel is necessary to maintain the relevance and appeal of the BBC’s output and is a precondition for the effective delivery of its public purposes; 2. The HD channel will promote a number of the BBC’s public purposes, in particular that of encouraging the take-up of emerging technologies. We consider these points in turn below. 1. Maintaining the relevance and appeal of the BBC’s TV output The BBC must maintain the relevance and appeal of its TV output as a precondition for the effective delivery of the BBC’s public purposes. Aside from the digital purpose, the proposed channel is unlikely to have any meaningful effect on these in the short to medium term. This is because, initially, HD viewing is assumed to be a straight substitution for viewing in standard definition. But, in the longer term, HD is likely to prove important to maintaining the BBC's relevance and appeal. The more prevalent HDTV becomes, the more likely it is that consumers' quality expectations of broadcast TV will change. There is therefore a real potential long- term risk to reach and content consumption, and thereby the BBC’s ability to promote its public purposes, if the BBC does not have an HD service in a relatively short time frame. 13 BBC Charter, 4(f), this is part of promoting the BBC's other Public Purposes. 14 Article 5. 15 Clause 12. 2. Promoting the Public Purposes In its submission, the Executive maintains that the HD channel will promote the following purposes in particular: o Building 'digital Britain'; o Stimulating creativity and cultural excellence; o Bringing the UK to the world and the world to the UK; and o Promoting education and learning. We believe that the launch of the channel could help serve the BBC's purpose to “deliver to the public the benefit of emerging communications technologies”.13 In so far as the service has considerable appeal to consumers, there is a strong argument for it being made as widely available as possible. We have given less weight to claims advanced by the Executive in relation to the other public purposes. We discuss these points in detail in section 6. Platform and spectrum considerations The remaining two components of the BBC Executive’s strategy are platform and spectrum related. In reviewing these it is important to consider the issues surrounding the availability of spectrum capacity and the ability of the DTT platform to support the HD proposal. We have considered the range of possible outcomes relevant to these concerns in the context of HD and the risks attached to them in section 10. 4.3 Would the channel need to be available on all TV platforms to be universally available? The Trust's view is that the DTT platform is integral to the BBC’s ability to deliver HD to as many licence fee payers as possible. Universality is a fundamental principle of the BBC. Because of the way it is funded, the BBC is required by its Charter14 and Framework Agreement15 to make its services available to the whole UK public. In considering universality, we have borne in mind that a service must pass the test of promoting the BBC's public purposes. If it does so, then it must be made available free at the point of consumption to as much of the UK population as possible. The BBC has usually interpreted this duty to mean that a service should be available on every significant platform – i.e. cable, satellite and terrestrial television. However, certain allowances are made for differences in the capabilities of each platform. For example, interactive television is provided with more interactive video streams on satellite than on DTT. 16 Advice on Spectrum Usage, HDTV and MPEG-4: Sagentia 2007 17 DTT platform penetration – 8.4million households (Ofcom Digital Television Update, Q1 2007). 18 We have reached this view taking into account the launch of Freesat which has specific public value but which we consider should provide access to HD alongside DTT access. Since an HDTV channel requires four16 times the capacity of a standard definition channel on a given platform, the question is raised whether it is necessary to maintain a platform-neutral approach to achieve universality. Capacity on DTT is significantly more constrained than on cable and satellite so there are higher opportunity costs in using UHF spectrum to provide HDTV. There are also higher direct costs in DTT distribution. Even leaving aside possible spectrum acquisition costs, the BBC Executive’s application quotes the cost of DTT distribution in additional spectrum as six times the cost of providing the HD channel on non- DTT platforms. In theory, it is possible to achieve universal availability without incurring these DTT costs. The launch of Freesat, as well as the availability of Sky’s free satellite service, means the BBC HD channel could be made available on a free-to-view basis to anyone prepared to invest in the equipment necessary to receive it. Satellite distribution reaches 95 per cent of the UK population, a broadly similar reach to that expected by DTT after digital switchover. However, satellite has coverage gaps and – even where coverage is available – greater barriers to consumers when installing satellite dishes rather than TV aerials. Satellite equipment is an expense for consumers and is subject to more onerous planning restrictions in some locations. We would not regard satellite distribution alone as being sufficient to secure universal availability. More importantly, DTT is strategically important for delivery of the BBC’s public purposes. Freeview is an inexpensive, high penetration service which is now firmly established as the most popular digital television platform among consumers.17 Although existing Freeview consumers would need to upgrade their receiving equipment in order to access HD through their aerials, DTT distribution of the channel potentially provides an easier upgrade path for the installed base of Freeview users than would be the case if a BBC HD channel were only available by satellite or cable.18 Accordingly, we regard DTT distribution of a BBC HD channel as an important element of the BBC’s ability to deliver the service universally. 4.4 Is the service necessary to future proof free-to-view television on the DTT platform? The Trust's view is that the channel could help to secure the future of free-to- view television on DTT, but this impact should not be overstated in the short term. The BBC Executive believes that HD is required for the long-term success of DTT in terms of meeting audience expectations, retaining viewers and in providing serious competition to other platforms (satellite, cable and broadband). The BBC has a legitimate interest in securing the future of the platform for free-to-view television, having invested around £120 million of licence fee money in Freeview. Moreover, there has been a strong public policy 19 Pay-TV is provided on DTT by Top-Up TV. 20 We also acknowledge that Sky offers a Freesat Service. commitment to DTT by the Government, which in turn has seen the industry and the public invest over £5 billion in DTT (infrastructure and receivers). The BBC Executive's application asserts that free-to-view television should not become inferior and that, if HD is not available in any significant way on Freeview, then the high quality viewing experience it provides would be available only to those willing and able to subscribe to pay-TV services. The Trust acknowledges the importance of the DTT platform, from both an audience and public policy perspective, including the principle of universality (as discussed above). We note also that the platform delivers higher reach and share for BBC programmes than other digital platforms. Freeview viewers are more inclined to watch BBC channels than those using pay-TV platforms. For many people terrestrial television is television. Those consumers would feel disenfranchised if, as HD becomes increasingly established as a television standard, they were unable to access it. In the long-term the reach of the BBC could be undermined if Freeview consumers felt compelled to switch to alternative platforms. Securing the future of the DTT platform for Freeview is therefore important to the BBC as it seeks to promote its public purposes. However, there are countervailing considerations to the view that the proposed HD service is necessary to protect DTT from becoming an inferior platform. DTT does not have to offer a comparable range of services as the pay-TV platforms. It is a different value proposition from cable and satellite. Aside from a low one-off initial payment, it is primarily a free service19 with a limited number of channels. By comparison, Freesat has potential to offer a greater number of free-to-view channels, including HD, but for a higher initial payment for the satellite dish and set-top box20 while Sky and Virgin Media offer higher cost and higher service propositions through a greater number of channels, premium channels (such as sport) and interactive options. Consumers benefit from a range of choices on the price and service mix. In the short term, it is probably not necessary for DTT to carry HD in order for it to remain attractive to consumers. DTT is the choice of those who: o Are content with the PSB channels, but are obliged to upgrade to digital. o Want some additional channels but don't want to pay for numerous extra channels that they would not expect to watch. o Already have pay-TV and want a digital second set. Strategy Analytics predicts that, were HD available on other platforms but not on DTT, 40 per cent of households would remain with DTT in 2020. 21 Commercial providers such as Sky can decrease (or increase) the cost of their Freesat service. 22 BBC Trust Unit discussions with industry representations – HDTV PVA representations June/July 2007. This suggests that the risk to DTT becoming inferior without HD can be overstated in the short to medium term, and we have weighed the risk accordingly. Over time, though, as HD becomes more widespread, the risk to DTT would increase. Furthermore, as we have noted above, there are other strong arguments for providing the channel on DTT – including the principle of universality and the BBC's role in promoting and delivering to the public the benefits of emerging communications technologies. We considered whether the four-hour overnight service would be sufficient to deliver the benefits of HD on Freeview. We concluded that the increased cost of access through time- shifted viewing would effectively reduce the proposed service to a premium offering. Due to the need for an MPEG-4 set-top box with PVR capability to allow for time-shifted viewing, the effective cost of accessing the overnight service would exceed £200, at least in the short term – compared with free satellite services costing in the region of £150.21 The cost of a DTT MPEG-4 set-top box is expected to fall over time as the demand and supply for the technology increase. The cost of a set-top box without PVR capability may fall to around a £[x] premium over existing SD set-top boxes over the next 3-5 years with PVR capability likely to add about £[x] to this price.22 So a full nine-hour HD service on Freeview would increase the accessibility and appeal of the service, both from a content and cost perspective. 5. Quality and distinctiveness Summary We consider that the service proposals will deliver medium to high public value in terms of quality and distinctiveness, with some concerns about the public value of the restricted four-hour service on DTT. The quality assessment for the service as a whole was marked down. This is a function of the fact that the four-hour DTT service is seen as being limited in scope and difficult to access, although a pre-selected ‘best of’ service is seen as a positive asset. We would expect these concerns to reduce if the DTT service is extended to the full nine hours at DSO, with the range of content desirable to licence fee payers. The picture quality offered by HD is recognised and valued by licence fee payers, although sound quality is a less valued element of the HD experience. We see the proposals as distinct from commercial competitors and likely to remain so, being subscription-free and without advertising. The BBC HD channel also offers a broader genre mix than other currently available HD channels and the vast majority of its content will be sourced in the UK. Over time, as HD becomes more of a ‘given’ expectation, we would expect this public value rating to decline. Quality L M H Distinctiveness Nine-hour service on satellite and cable Four-hour service on DTT In assessing the quality and distinctiveness of the service proposals we have discounted the underlying content per se (except in regards to the range offered in HD) and focused on the additional benefits of receiving the content in HD quality picture and sound. L M H Nine-hour service on DTT Overall 23 High Definition Public Value Test, Quantitative Research (RQIV), August 2006; HD DTT PSB Trial Waves 1-4, June 2006-Jan 2007. 24 HDTV A Deliberative Research Project by Human Capital, July 2006. 25 Online Panel Survey, GFK, Feb 2006, Nov 2006 5.1 Approach Quality and distinctiveness are minimum requirements for any BBC service. As such, they are very important but unlikely to be sufficient drivers of public value on their own. Though there is some crossover in the characteristics of quality and distinctiveness, they will be considered separately. In assessing the evidence presented by the BBC Executive, we considered the following key questions: o What are the key drivers of quality and distinctiveness and will the BBC HD proposals deliver them? o What would be the impact on the BBC’s quality and distinctiveness if the proposed services did not launch? As for any new broadcast service, the content available plays a vital role in driving audience perceptions of quality and distinctiveness. As almost all the content on the proposed BBC HD channel is already available in SD quality on the existing BBC channels, we focused on the ‘additionality’ of the proposition which, in this case, is the benefit of watching the content with a higher quality picture and sound. However, given that the proposed channel will necessarily comprise a limited range of selected content, it is relevant to judge the range of this content as a component of the quality assessment, both in the full nine-hour and limited four-hour channel scenarios. The evidence submitted by the BBC Executive covered both the detailed feedback of those who had experienced the BBC HD trial23 (on both DTT and other platforms) and the views of a broad general population sample who gave their views on the principle of the BBC providing HD channels (the Human Capital deliberative research24). Evidence was also provided from opinion surveys based on large population samples, although this did not necessarily draw on those with experience of HD.25 In our view the evidence based on those with direct experience of HD was subject to some limitations. The BBC HD triallists comprised both early adopters of HD (on Sky and cable), and a selection of those who had volunteered to receive an HD box on Freeview. Of these triallists 85 per cent were male; older viewers were less represented. Triallists also tended to live in technology-rich households. In our view this sample was therefore representative of early HD adopters rather than the wider population. In the Human Capital deliberative research, the sample was more representative of licence fee payers in general, albeit limited to 100 people within the M25. But the HD channel propositions to which they were asked to respond were broader than the HD channel in 26 Trust HD Research, BMRB, May 2007. this proposal. For example, they were asked about how they felt about the five main PSB channels on Freeview/subscription; about having some channels in HD/some in SD; and about having the five main PSB channels in HD on Freesat only. The Trust therefore commissioned further research on how a broad cross section of the public felt about the idea of a single BBC HD channel. The Trust commissioned BMRB to carry out research amongst 189 people in Hall Tests in April/May 2007.26 Respondents were shown a demonstration of HD quality pictures and then interviewed about their feelings about HD in general and the proposed BBC HD channel in some detail. This research is referred to in the narrative where relevant. 5.2 Conclusions Quality: overall, the proposals are assessed to be medium quality. o The quality of HD picture and sound per se – The level of picture quality offered by HD is both recognised and valued by licence fee payers as a significant improvement over the standard SD picture. Sound, although clearly technically superior, is less recognised as a key element of the HD experience and this is a factor we took into account in our weighting. o The specific quality of the proposed BBC HD channel picture and sound (including its technical robustness) – The BBC HD channel in trial mode was found to reflect the benefits of the format, and there is some evidence that it may even be perceived as better quality than other HD channels. After some teething troubles it was also found to be technically robust on all digital platforms. o The range of content available via the proposed schedule – The full nine-hour service offers a broad range of content, scheduled in an easily accessible way at the peak times of viewing. However, some of the proposed content does not consist of the genres that most benefit from HD-quality pictures. The four-hour service on DTT is very limited in scope and is more difficult to access, requiring recording on a PVR by those not normally viewing television between 02.00 and 06.00. However, for some people having a pre-selected ‘best of’ HD service available to download at their convenience may be seen as a positive asset. o Platforms – There is no quality differential in terms of the platforms per se. Our lower rating of the four-hour service on DTT is a function of its lower broadcast hours. Distinctiveness: The assessment of the distinctiveness of these proposals needs to take into account the emergent nature of the market. At the time that all the research was being undertaken there were few alternative commercial offerings against which to compare the service. 27 It will be possible to obtain the channel on platforms where a subscription is paid for access to the platform. But there will not be a separate subscription for the BBC HD channel. 28 Virgin Media does not charge a subscription per se for providing HDTV. However, it is only available to (i) subscribers of Virgin Media and (ii) only then to those subscribing to the ‘premium’ V+ package. We consider the BBC HD proposal to be medium to highly distinctive at this point in time in the key respect that it is presently the only means of accessing HD content free from subscription27 at the point of use.28 It would also contain no advertising, a position unlikely to be adopted by any future providers of subscription free HD services. BBC HD would also offer a broader genre mix than other HD channels at the current time and the vast majority of the content would remain UK s Distinctiveness by platform is primarily driven by the availability of other HD services. Accordingly, the nine-hour service on DTT has a higher rating than cable or satellite. The four-hour service on DTT is less distinctive than the equivalent nine-hour service given its more limited broadcast hours. 5.3 Key questions to determine public value Introduction Quality and distinctiveness are essential measures for assessing the public value of a service. In the context of the proposals presented, the new BBC HD channel would need to provide a service that (i) has a high quality user experience and (ii) is distinctive from anything else in the market. 5.3.1 What are the key drivers of quality and distinctiveness and will the proposals deliver against them? A. Quality There are 3 key aspects of quality that are considered in this section: o The quality of HD picture and sound compared to SD o The specific quality of the proposed BBC HD channel picture and sound (including its technical robustness) o The range and nature of content available via the proposed BBC HD channel schedules We treated separately the range and nature of content in the two channel scenarios as put forward by the BBC Executive i.e. the nine-hour and four-hour options as described in section 2. We also note that the nine-hour service would not be fully available until late 2008. 29 OFCOM, Consumer Engagement with Digital Communications, July 2006. 30 Screen Digest, Introducing HDTV, p19. 31 High Definition Consumer Research, Aug/Sept 2005. 32 Trust HD Research, BMRB, May 2007. It is too early to consider the impact of IPTV on the proposition (and the internet is not seen at present as a delivery option for the channel by the BBC Executive) although it could become more important in future. The quality of HD picture and sound compared to SD The Trust’s view is that HD picture and sound is demonstrably superior to that provided by SD, and that, on the whole, consumers recognise and value this improvement. However, the benefits will vary depending on the genre of programme and the size of the TV screen. Audiences value picture quality; it is one of the more valued aspects of standard digital TV.29 In regard to the current proposal there are two key questions: o Does the picture quality provided by HD offer a demonstrably significant improvement over SD? o Do viewers at home recognise this ‘quality uplift’? On the first question, the HD picture and sound as broadcast to an HD-ready television are undoubtedly technically superior to that of conventional SD television. HD offers a resolution of 720 progressively scanned lines (720p) or 1,080 interlaced lines (1080i) and displays four to five times more pixels than in SD. It has been described as ‘crystal clear’, showing crisp, stunning details’ or ‘startling clarity’”. Picture and colours are also described as being ‘more realistic’.30 HD also offers the potential to broadcast in 5.1 cinema-style surround sound. On the second question, there is definite evidence that consumers can recognise the benefits of this higher standard in the viewing experience, as provided by a range of consumer trials. In early BBC screen tests, HD pictures were given a score of 8.6 out of 10 for picture quality compared to 6.2 for SD.31 The Trust’s own research confirmed this consumer recognition of a quality uplift with HD; after comparing the same material in SD and HD, 64 per cent gave HD a score of eight to ten (on a scale where one is where HD is very similar to SD and ten is where it is significantly better) and 62 per cent said that the difference of HD over SD was ‘better than expected’.32 “I would say that it is much clearer in lines being more defined and also the colour is much brighter and not as dull as 'normal' TV. The HDTV is much sharper and in my notes I thought that it almost like being in the room with the show; live.” – Kingston respondent However, the perception of an uplift will not be uniform across all households. The main benefits of HD over SD are observed for larger sets of 28” and above, as the quality of SD 33 TGI, Oct 05-Sept 06. 34 High Definition Public Value Test, Quantitative Research (RQIV), August 2006. 35 HDTV A Deliberative Research Project by Human Capital, July 2006. 36 HD DTT PSB Trial Waves 1-4, June 2006-Jan 2007. declines at this size of screen. Although there is a trend towards consumers buying larger sets as their price continues to fall, currently only a third of main sets are 30” plus, while in as many homes the main set is 25” or below.33 Furthermore, recognising a quality uplift when shown SD and HD side by side is not the same as being dissatisfied with the current SD picture quality in isolation. In the Trust’s HD research, levels of opinion about current SD picture quality were indicative of broad satisfaction – 56 per cent gave it a score of 8-10 and 66 per cent said they were satisfied with it. However, the trend to larger sets noted above may increase the dissatisfaction with SD and so increase the quality uplift of HD in the future. The initial ‘wow' factor of HD seems to wear off as people get used to it, a trend no doubt typical of most new consumer products. In the feedback from the BBC HD trial, where the respondents had lived with HD for several months, the proportion giving HD a score of eight out of ten or more fell from 80 per cent at the start of the trial to 64 per cent by the end.34 However, this still indicates a high level of satisfaction with HD. The perceived benefits of HD are not uniform across all types of broadcast content, but vary for different genres of programming. In the Human Capital deliberative research, films, wildlife and sport were given a score of four or more out of five for theoretical relevance to HD, with scores falling to under three for lifestyle and leisure, history, education, children’s, soaps, comedy and news, and to under two for current affairs and religion.35 This expected theoretical difference was echoed in the actual experience of viewing programmes in the DTT trial, where ratings of a programme being ‘much better in HD’ ranged from 80 per cent plus for Planet Earth and the World Cup to well under 50 per cent for the dramas The Chatterley Affair and 20,000 Streets:36 37 BBC Management’s PVT Application for a High Definition TV channel, p35. Source: HD DTT PSB Trial Waves 1-4, June 2006-Jan 2007 This differential benefit of HD to different genres of programming may have implications for the perceived quality of the BBC HD service. Films and sport, the most important HD genres to consumers, will make up only a relatively small proportion of broadcast hours of the proposed channel. We return to this point in section [6] below. There is anecdotal evidence in the BBC Executive’s submission that the act of filming in HD expands the creative potential, which would obviously be a factor in increased quality. For example, Alastair Fothergill mentions the benefit of being able to shoot from higher up without disturbing the animals on Planet Earth, and Nigel Stafford Clarke mentions the quality of the close-ups in Bleak House.37 However, for the purposes of this PVA this aspect of quality has been set to one side as a move to more filming in HD is not dependent on the approval of the proposed BBC HD channel; our expectation is that the BBC would produce much of the HD content anyway, not least for the benefits of archive longevity and worldwide resale. The specific quality of the proposed BBC HD channel picture and sound (including its technical robustness) The Trust’s view is that the specific BBC HD channel will fully reflect the technical benefits of HD quality Programme Programme works much better in HD than in normal broadcasts Planet Earth xx World Cup xx Wimbledon xx Later with Jools xx BBC Sessions xx Proms xx Torchwood xx Sorted xx Strictly Come Dancing xx Bleak House xx Into The West xx Chatterley Affair xx 20,000 Streets xx Text Box: Programme 38 www.avforums.com, 21st March 2007. Anon - a discussion forum backed by a number of audio and visual consumer magazines, including What Plasma and What Video & Widescreen TV. 39 PSB Broadcasters HD Trial, Wave 4 headline results. In terms of raw picture quality, the BBC Executive will apply agreed HD standards (720p or 1080i). Although it may be difficult for ordinary consumers to recognise (or articulate) whether the BBC service is merely ‘good’ or ‘excellent’ HD quality, there is evidence that the technical excellence of the picture is recognised by some of the more technically astute early adopters, such as these quoted from AV forums:38 “The quality is nothing short of stunning 90 per cent of the time and is the only channel (bar maybe some Discovery HD stuff) that I use to demonstrate the power of what HD can do.” “Caught a snippet of the Antiques Road Show last night, all I can say about the PQ was it was absolutely amazing, if some of you guys have not seen this yet then check the next broadcast out, its drop dead gorgeous.” The research evidence submitted by the BBC Executive suggested that the BBC HD trial had experienced a number of issues with technical quality – 68 per cent reported some problems after Wave 1 and about half said they had experienced some problems during the course of the trial.39 These ranged from the picture freezing or breaking up to problems with synchronisation of picture and sound. However, on further investigation it was asserted by the BBC Executive that this was due to teething troubles with the prototype boxes and their set-ups (and variable signal strengths) which were ironed out by the end of the trial. If the HD channel is given approval, the Trust will need firm assurances that the channel would be technically robust in its non-trial form as this is a key measure of quality for the audienc The range and nature of content available via the proposed schedule The Trust’s view is that the nine-hour channel offers a broad range of HD content, scheduled at a convenient time for the audience, although some of the content is not that which most benefits from HD quality (particularly with BBC One simulcasting). The four-hour channel is much more limited in scope and not as easy to access. Although the specific content on the BBC HD channel is almost entirely available on the BBC SD channels, and so not in itself relevant to our quality assessment, for the purposes of the PVA it is relevant to judge the quality of the range and nature of content offered to the viewer in HD. In addition, our assessments of quality in relation to the range and nature of content on the proposed BBC HD channel need to be treated in the two scenarios described earlier. For the purposes of this assessment we consider the full ‘up and running’ nine-hour service, rather than the transitional 2007/2008 service. If approval were given, the Trust should consider seeking assurances that it would reach the full nine hours by the late-2008 dates indicated in the BBC Executive's application. 40 BBC Management’s PVT Application for a High Definition TV channel, p3, 41 72 per cent of viewing minutes occur in this part of the schedule and 3 minute weekly reach is 91 per cent - BARB 2006. 42 BBC Pulse. 43 The BBC Executive has said since its application that it is prepared to take a broader approach and this has been addressed in section 11.3 44 BARB, 2006. 45 Trust HD Research, BMRB, May 2007. The ‘full’ nine-hour service The BBC Executive describes the service as ‘the best of BBC’s HD programming’ combined with ‘simulcasts of BBC One’s core peak time content, complemented by time-shifted and archive content plus a limited amount of new content’.40 It will run from 15.00 to midnight each day, although it will be extended to accommodate major sporting, music or other national events. Outside of these hours there will be a looped ‘barker’. 15.00-midnight core schedule By operating across this period of the day/evening the proposed channel will cover the bulk of most people’s viewing.41 To this extent it will appear as a relatively ‘complete’ channel to the viewer as it will only be off air at times of relatively low viewing. Describing the channel as ‘the best of the BBC’s HD content’ in itself indicates a high quality offering to the viewer. In the indicative schedule, for example, there are examples of such programmes as Coast, Who Do You Think You Are?, Dragons Den, Torchwood, BBC One 9pm dramas – all of which are programmes which are given high Appreciation Indexes (AIs) by the audience.42 However, it is worth noting that the core of viewing when the channel is up to full strength would be primarily simulcasting of the BBC One peak time schedule (from 19.30-22.00). This is the period when most people are likely to be consuming the channel ‘live’. Although BBC One is a widely watched and broadly popular channel, many of the genres in this part of the schedule (lighter leisure and popular drama such as EastEnders, Holby and 9pm dramas) will not necessarily be the ones to benefit most from HD.43 Some of the more distinctive HD programmes may be scheduled away from this core viewing time and so may be less widely watched. The average TV audience from 15.00-17.00 is only 8.2m compared to 22.3m from 19.30-22.00, so programmes in this part of the schedule would require some degree of time shifting to be watched by the broadest audience.44 The Trust’s HD research found a majority of respondents expressed some interest in getting access to the channel even at the highest price point of £200.45 Although this is likely to be an overestimate of actual take-up it suggests a broad acceptance of the nine-hour schedule on offer. Detail on this research is presented in section 6. Another consideration for quality is that nearly all programmes on the channel, outside of the core BBC One simulcast, will be repeats of SD programmes, albeit in HD quality picture and sound. Having too many repeats is a frequent criticism of the BBC and it could therefore be assumed that this aspect of the service would have a negative impact on perceived quality 46 Indeed, in the Trust HD research there was some disquiet that the schedule was mainly programmes that were available on the SD channels. 47 BBC Repeats research, June 2004. 48 PSB Broadcaster’s HD Trial, Wave 4 headline results. 49 Trust HD Research, BMRB, May 2007. of the channel.46 However, the criticism essentially concerns what are perceived to be ‘tired’ repeats from the archive, whereas those in the HD proposal would be repeats of more recent, higher profile programmes (Who Do You Think You Are? and Coast for example). 47 In our view, therefore, the fact that repeats are shown is not likely to be a serious issue for quality. Although in the Trust’s HD research many complained that the proposed schedules were made up of programmes that they could watch in SD anyway, in the feedback from the DTT trial those welcoming the opportunity to see HD repeats outnumbered those resenting them by a factor of two to one. 48 Another aspect likely to impact on perceived quality is the genre mix of the proposed channel. Less than 20 per cent of the output is planned to be sport or films, so it will be a genuinely mixed genre channel in contrast to some of the other HD offerings in the market. However, as noted previously, sport and films are felt by the audience to be amongst the genres that benefit most from being broadcast in HD, so this relative lack of the two key HD genres may also impact negatively on the channels perceived quality amongst the audience. There was some evidence of this in the Trust HD Research: “For sport and films that would be fantastic though for everyday viewing I don’t believe the difference between HD and normal is significant”. – BMRB research Although the overall proportion of sport on the channel is relatively low, the intention to broadcast major sporting and other national events (such as high profile concerts) is likely to increase the audience’s perception of quality of the BBC HD channel. Coverage of the 2008 and 2012 Olympics in HD, for example, will be of significant value to those who can access the channel, as well as coverage of such events as annual Wimbledon tennis and major snooker tournaments. The flexible capacity of the nine-hour channel will allow these events to be covered in great depth. The four-hour DTT service In the Trust’s view this very limited service would reduce the perceived quality of the overall BBC HD offering. It would consist of around four programmes a day – which is difficult to describe as a true TV ‘channel’. The feedback from the BBC Trust HD survey is lukewarm.49 Only 29 per cent express interest in getting access in the next year or two at a set-top box price point of £200 (although just over half are interested at £50). As well as concerns about the cost, 38 per cent of those rejecting the channel cited the lack of programmes on it. As one respondent put it: “Simply not enough content” – BMRB research 50 The DTT trial was closer in scope to the nine-hour service than the four-hour service. We would not expect this level of support for the four-hour service. Although the proposal is that the limited number of programmes offered will be the higher end of programming in terms of quality (examples given are Galapagos, Planet Earth, Torchwood, Who Do You Think You Are?), this will still add up to a very limited offering to those in DTT homes. The quality assessment is reduced by the overnight broadcast from 02.00-06.00. This will require the majority of the audience to record it on a PVR for playback at a more convenient time. 28 per cent of those showing lack of interest in the four-hour channel in the BBC Trust HD research cited this as a reason for their rejection. “I can never be bothered to record programmes so it’s not likely that I would do that. Would the quality not fall if it were a recorded version you were watching?” – BMRB research However, some did welcome this means of accessing HD content as a way of making sure they would be able to watch the best of BBC HD content at their convenience. The limited scope of this DTT offering is important, as the Executive submission cites positive audience feedback from both a more rich (and more conveniently scheduled) DTT trial and reactions to the concept of full PSB channels being broadcast in HD. At no point were consumers judging a service with both restricted content and differential access. This restricted DTT offering would effectively mean that the BBC will be creating a three tier service before digital switchover: a full nine-hour channel on satellite and cable, a restricted four-hour service on DTT; and a further group unable to access the channel at all (either because they have not yet gone digital or because they have not upgraded to HD). This differential access from a universally funded BBC may also impact negatively on perceived quality. The need to remove BBC Four and BBC Parliament (plus three interactive streams) will have a slight negative impact on quality. This is discussed more fully in the Impact section. Participants in the DTT Trial noted other aspects of quality. The service was given a score of eight or more for ‘excellence’ by 74 per cent of respondents, and 62 per cent gave it similar scores for being innovative and original.50 This latter score is important, as innovation and originality are something that the BBC is expected to deliver to the audience across its output, and are a key component of a quality service. B. Distinctiveness The Trust’s view is that at this point in time the proposed BBC HD channel will be distinctive in terms of it being subscription free at the point of use, carrying no advertising, and having a broad genre mix of UK-originated content. 51 Gfk. 52 High Definition Public Value Test, Quantitative Research (RQIV), August 2006. 53 It will be possible to obtain the channel on platforms where a subscription is paid for access to the platform. 54 The Trust is aware of media reports regarding other PSBs' HD DTT broadcast strategies but has not received formal notification that other PSBs have committed resource to HD broadcast (as opposed to production) strategies. 55 Advice to BBC Management on the potential market impact of the proposed new BBC HDTV channel, December 2006, Spectrum. The BBC HD channel would not be exclusive in terms of offering the ability to watch HD content per se. As we observed in section 4, consumers are increasingly exposed to a variety of entertainment products in HD. It is therefore necessary to assess the distinctiveness of the BBC HD offering within the specific context of HDTV channel offerings. In addition, any assessment of the likely distinctiveness of this proposal needs to take into account that the provision of HD television in the UK at the moment is a market in its early stages. In March 2007 only 13 per cent of the population had an HD-ready TV set and only two per cent subscribed to an HDTV service.51 What is distinctive now may be less so in the medium to longer term. Whilst bearing this in mind, there is evidence that the BBC HD channel would be distinctive and that the public recognise this. In the RQIV assessment of the BBC HD channel on the DTT trial, for example, 84 per cent gave it a score of eight or more for distinctiveness, the highest of all the dimensions measured.52 Although these triallists were likely to be more positive about HD than the general population it is still an impressive score. The key element of the proposed BBC HD channel’s distinctiveness is that, at least in the short term, it would be the only subscription free way of accessing HD television programmes53. At the time of this PVA there are no firm plans from other broadcasters to offer HD content free in this way.54 In the view of the Spectrum report submitted by the BBC Executive it is unlikely to be cost effective for the other PSBs to offer HD free at the point of use in the short to medium term.55 However, it should be noted that all the other PSB broadcasters took part in the DTT Trial with the BBC and so are clearly actively exploring HD plans. In addition to being subscription free, the proposed channel would also be distinctive from other anticipated HD offerings in that it would carry no advertising, in common with all BBC UK public service output. Only the Sky film channels, in the current suite of HD channels on offer, carry no advertising. BBC HD would certainly be the only mixed genre HD channel proposed to carry no advertising and the only free-to-view channel without advertisements. The specific range and genre mix on the BBC HD channel is another way in which it would be distinctive from other HD channels. It is likely to be the only channel to offer children’s, comedy, soap and current affairs in HD quality. However, as noted earlier, these are all genres that in the Human Capital research were seen as being less relevant to HD and so this element of distinctiveness should be treated with care. 56 We recognise that the sourcing of content by other providers may also change as the provision of HD develops. 57 There is a high level of agreement, for example, on the BBC’s Tracking Study that the ‘BBC maintains high standards of quality’ (6.4 out of 10), and ‘The BBC is a great ambassador’ (6.6); PBTS, 2006 TNS. 58 Although this is only likely to be a key issue for the limited number who access HD services. 59 HDTV A Deliberative Research Project by Human Capital, July 2006. Finally, the proposed BBC HD channel would be distinctive in terms of it comprising almost exclusively UK content. Much, if not the majority, of the HD content currently available on the Sky/Virgin channels is sourced in the United States, with the exception of the domestic sports output on the Sky Sports channel.56 All the reasons cited above apply to the BBC HD channel on all the digital platforms. However, the BBC HD channel would be particularly distinctive on DTT, as there are currently no other options for watching HD on this platform. This extra distinctiveness on DTT applies to both the four-hour and nine-hour channel scenarios. 5.3.2 The counterfactual: What would be the impact on quality and distinctiveness if the proposed services did not launch By not launching an HD channel at this time the BBC could be seen to be falling behind the market in technical progress and excellence. As discussed in section 4, there is a general expectation amongst the audience that the BBC is a benchmark for quality broadcasting in the UK (if not the world).57 High production values in its output are both expected and valued from the BBC. This includes the picture and sound quality of the output on the main BBC channels. There is a risk, therefore, that if the BBC is seen to be slipping behind others in regard to HDTV it could damage its reputation for quality. Even if in the short term there are no other PSBs offering HD channels, the quality of the picture and sound on the BBC's SD channels would be demonstrably inferior to the HD content on Sky and Virgin, and compared with HD channels overseas.58 This perception of the BBC SD channels’ picture quality being below the highest market levels could grow as the number of people buying larger screen televisions (above 28”) increases. The same risk arises from the growth of HD quality in games and home video, as well as the likely growth in access to HD DVD and Blu-ray discs. Evidence from the Human Capital deliberative research showed that 72 per cent approved of HD being universally available to everyone in the country, second only to wireless broadband and ahead of local TV and mobile TV.59 In the BBC Trust HD research, a similar proportion (62 per cent) felt that it was a good thing in principle for the BBC to be involved in HDTV. There was also a broad acceptance that HD will become the standard for TV in the near future, although we take the slightly more conservative view that it will become a broadcast standard (but the production standard). In this context, the BBC could be seen to 6. Impact (consumer and citizen benefits) be lagging behind on a key future technological development if the HD channel is not approved. Summary The BBC HD channel proposition as a whole should deliver medium consumer and citizen benefits in the short to medium term. However, as access to HD grows and constraints on the DTT service proposition lessen, the impact will become greater. We considered the impact of the services from both a consumer perspective and a citizen perspective. The proposed service provides an opportunity for all licence fee payers to access HD quality pictures without a subscription, something that audiences recognise as a benefit to them. The experience of HD (rather than the proposed service) is of greater benefit to consumers than to society in terms of its technical quality. However, as already noted, the proposed service would play a significant role in promoting the BBC’s digital public purpose of ‘helping to deliver to the public the benefit of emerging communications and services’. Launch of a BBC HD channel would help make a technology that has wide appeal universally available and thereby help stimulate the market. Consumer impact L M H Citizen impact Nine-hour service on satellite and cable Nine-hour service on DTT Four-hour service on DTT The proposed HDTV service was seen to have good relative worth compared to SD, suggesting the technical quality provided by the service would be of value to audiences. L M H Overall 6.1 Approach to assessment Any assessment of the potential impact of the proposed BBC HD channel must evaluate both the consumer and citizen benefits delivered by the service. In assessing the evidence presented by the BBC Executive, we considered the following key questions: o What is the positive impact of a BBC HD channel from both a consumer and a citizen perspective? o Are there any risks or negative impacts associated with launching a BBC HD channel (including the public value foregone from overnight closure of five services on DTT)? o What would be the impact on people as consumers and citizens if the BBC HD channel did not launch? As discussed in Section 5, the content available on the proposed channel plays a vital role in driving audience impact. Again we focused on the ‘additionality’ of the proposition, which consists of the benefit of watching the content with a higher quality picture and sound, and the range of this content both in the full nine-hour and limited four-hour channel scenarios. Again, we also drew on the research we commissioned from BMRB. 6.2 Assessment Consumer impact Overall, the proposals are medium impact in terms of consumer benefits. The BBC HD channel will provide the opportunity for all licence fee payers to access HD quality pictures and sound free at the point of use. HD is both recognised and valued as an improvement on SD. The BBC proposal is broadly welcomed by consumers, although perhaps not significantly ahead of other potential investment options. Citizen impact The proposals have medium citizen benefit. In our view the particular experience of HD television is more of a benefit to the individual household than to society, but there will be wider benefits to society if the BBC HD channel is launched. These primarily derive from helping make the technology more universally available and helping prevent a further digital divide. It would also drive the demand for and production of HD set-top boxes, with more efficient MPEG-4 compression capabilities, which would also promote a more efficient use of spectrum. In helping to establish a free-to-view HD market, the BBC would also help pave the way for other broadcasters to enter sooner rather than later. Taken together, these developments would significantly help promote the BBC’s digital purpose of delivering to the public the benefit of emerging communications technologies. 60 In particular, the Spectrum analysis suggests that only 15 per cent of DTT homes will be HD enabled in 2012, compared to 30 per cent of Freesat homes, 44 per cent of cable homes and 53 per cent of Paysat homes. With access to subscription cable and satellite services being limited due to their subscription cost, their ability to promote the purpose will, in our view, be less than the free-to-air services, particularly Freeview. However, as access to HD becomes cheaper and constraints on the DTT platform lessen, the overall impact of the proposed service in delivering the BBC’s digital purpose will correspondingly increase. Worth The ability to access PSBs in HD was given a higher monetary value than their SD equivalents, suggesting that the experience of HD is of value to audiences as consumers and citizens. Platforms Consumer impact by platform would be driven by the uniqueness of the proposed HD channel against the platform’s service offering. Since satellite and cable already have both HD channels and significantly more SD channels, the impact on DTT would be greater. The restricted availability of the four-hour DTT reduces its rating. 6.3 Key Questions 6.3.1 What is the positive impact of the proposed services from both a consumer and a citizen perspective? The nine-hour schedule on satellite and cable, the nine-hour schedule on DTT and the four- hour schedule on DTT were assessed separately. Both the consumer and citizen impact of the BBC HD channel would be limited by its restricted availability. Even if the BBC HD channel is given approval, by the BBC Executive’s own estimates the proportion of HD-enabled households will be only 15 per cent in 2010 and 36 per cent in 2012 (14 per cent and 34 per cent respectively if only a four-hour channel as the potential scope of any BBC HD offering would have an impact on consumer take-up of HD services).60 This is a key consideration in assessing overall impact. A. Consumer benefits There are two key areas to consider in assessing the potential consumer benefits of a BBC HD service: o Do consumers recognise and value the change in picture and sound with HD? o Does the specific BBC HD service as proposed offer consumer benefits (in both the nine-hour and four-hour versions)? 61 17 per cent in next 12 months, 25 per cent in next year or two, 28 per cent might consider in next few years. Do consumers recognise and value the change in picture and sound with HD? In the Trust’s view HD offers a consumer benefit in that an improvement in picture quality is both recognised and valued by the audience, although the benefit is reduced as most of the audience do not currently have a problem with SD. Section 5 discussed the evidence on consumer benefits in terms of the quality and distinctiveness of the proposal (see 5.3.1 A ‘Quality’ – the quality of HD picture and sound compared to SD). In short, it noted that consumers do value the quality uplift of HD, especially in terms of picture quality. However, the benefit is lessened as most of the audience do not currently have a problem with SD. Would the specific free to air BBC HD service as proposed offer consumer benefits? The proposed BBC HD channel would convey many of the consumer benefits associated with HD’s improved technical quality (which is recognised and valued by audiences), although less so in the case of the four-hour channel on DTT. However, the strength of this consumer benefit is not necessarily essential to much of the audience at the expense of other options for investment. Section 5 included evidence on the specific BBC proposal in terms of quality and distinctiveness. The following recaps on these as they apply to potential consumer benefits. Many people are buying HD-ready sets and expectations are growing that they will therefore be able to access HD content to maximise the benefit to them of investing in the set. The experience of the DTT trial (where only a few hours of HD content were shown each day) indicated that even a limited service is relatively popular with an audience and can offer them significant consumer benefits. The BBC HD channel was not only recognised as offering good picture quality, but also had real impact on a substantial proportion of those who experienced it. This recognition of consumer benefits also seems to be apparent in the wider audience beyond the trial. Overall, in the Trust HD research, 70 per cent of the sample showed some interest in getting access to the nine-hour channel in principle,61 and 44 per cent in getting it in the next year or two (falling to 60 per cent and 33 per cent respectively for the four-hour channel). This was after being made aware that they would have to have an HD-ready set and purchase a new set-top box. They were also shown indicative schedules for both channels. The research also asked people to say how interested they would be in accessing both versions of the channel at different indicative levels of cost of the decoder box (this question was not platform specific). Not surprisingly, interest in getting access to the BBC HD channel increases as the cost of the box decreases, from around a third at £200 to around half the sample showing interest at the £50 level: The relative similarity in the level of interest for the four-hour and nine-hour channels is perhaps surprising given the apparent large difference in offering of the two channels. There may be two explanations for this. One is likely to be a general inclination to have a BBC HD channel, which is not sensitive to the specifics of the actual schedule (particularly given the limitations of consumer research in conveying the full reality of a schedule). Secondly, comments from the respondents showed that the selection of programmes on the four-hour channel was felt to be of a high quality, and a few even felt the idea of recording programmes was actually an asset as it offers the additional benefit of convenience – allowing the HD programmes to be watched and appreciated at their leisure: “[I] Like the idea of recording things overnight to watch when convenient” – BMRB research For the purposes of the research the appeal of the nine-hour channel was assessed overall, rather than on specific platforms. How strong is the public appetite for the BBC HD channel? There is evidence that consumers are keen to gain access to HDTV, but it is not yet seen as a must-have. 111212151717182328371926054 hr - Interest at £2004 hr - Interest at £1504 hr - Interest at £1004 hr - Interest at £509 hr - Interest at £2009 hr - Interest at £150% interested in getting access to BBC HIn next 12 monthsIn 62 Although they were not aware of what level of new programming the HD budget would account for. Despite the acknowledgement by consumers that HD does offer significantly better quality pictures, and evidence of a broad desire to gain access to the BBC HD channel, there is some evidence that the service, as proposed, is not seen as a must-have for a high proportion of licence fee payers. In the Trust’s HD research, for example: o Only 49 per cent gave the BBC HD channel proposal five or more for importance to their household. o However, a significant minority – 24 per cent – gave it more than eight (the average score is only 4.9%). o On balance, more people favoured the option of new programme investment for the current channels (43 per cent) than favoured the HD channel proposal (27 per cent) when asked to pick the most appealing option for their household.62 o Less than half (43 per cent) agreed that the BBC HD channel should be free – the rest felt it should be available by subscription for those who want it (29 per cent) or had no strong views either way (28 per cent). o There was also some evidence of resignation that subscription is a more likely route in future, with almost twice as many agreeing as disagreeing (45 per cent to 26 per cent) that HD ‘will be available as an additional paid for service for only those who are interested in it’. This suggests a degree of acceptance at present that this is a technology that is perhaps more suited to a premium service. The genre mix on the proposed channel will also have an impact on its perceived benefit to consumers. Sport, wildlife and films are seen by consumers to be most suitable for HD and to get the biggest quality uplift – and sport and films will only make up a relatively small proportion of the schedule. Children’s, soaps and lifestyle will make up a sizeable part of the proposed channel in the peak hours of viewing – and these are all genres that are felt to benefit least from HD quality pictures: “[I] would like to have seen some programmes within this schedule that made better use of the added qualities of HD television” – BMRB research “There aren’t enough films on. That’s all I'd really be bothered about watching in HD. Films and sport.” – BMRB research The BBC Executive’s submission also suggests that most of the viewing of the channel will be substitutional rather than additive – in other words consumers will watch the same types of programmes as before but in HD quality. This is likely to limit the impact of the proposed service for the consumer. In the Trust’s HD research many expressed disappointment that the new channel didn’t have fresh material: “It looks exactly the same as normal channels e.g. BBC 1” – BMRB research 63 HDTV A Deliberative Research Project by Human Capital, July 2006. 64 Willingness to pay the BBC Licence Fee. The Work Foundation, September 2006. “I don't see what all the fuss is about. The programmes being shown are already available on normal TV and I don't watch most of them” – BMRB research Even when a broader HDTV offering is put in front of consumers there was still some ambivalence when asked to trade it off against other alternatives. In a spectrum allocation exercise carried out by Human Capital, three HDTV channels on Freeview were allocated on a par with eight SD channels (and in a straight ranking exercise the SD channels won out63). This again suggests that the current appetite for more channels is at least as strong as that for HD channels with programming available elsewhere B. Citizen benefits It is difficult for people to assess whether something is of wider societal benefit, particularly when it is an emerging rather than an established technology. We have borne this in mind when considering the views expressed by the public in this area. In this section the issues relating to citizen benefits will be considered under three broad areas: o Does HDTV in itself offer citizen benefits and what could they be? o Does this specific BBC HDTV channel proposal offer citizen benefits? o Does the proposed HD channel help promote the BBC’s Public Purposes? Does HD in itself offer citizen benefits and what could they be? In the Trust’s view, HD as a concept (rather than the proposed channel) is limited in terms of the societal benefits it offers – it is more of a benefit to the individual consumer. There is some evidence from research that people do not see HDTV per se as offering a significant societal benefit. For example, in the Work Foundation research for the DCMS in September 2006, only 38 per cent of the population agreed that investing in HDTV would improve the BBC’s contribution to society – ranking it seventh out of the ten options offered to them64. It seems that what is holding back a greater score for societal impact is a sense amongst some that HD is ‘a luxury’ rather than a necessity – and will not in itself improve the quality of the content, just improve how it looks on screen. “It is impressive watching HDTV but I would rather have good quality new shows on the current channels than high definition viewings of old shows/re-runs!” – Kingston respondent 65 BBC Charter, 4(f), this is part of promoting the BBC's other Public Purposes. Balanced against this, we have considered that a degree of initial scepticism may well be a feature of all new technologies before they have proved their worth through experience. The BBC Executive suggests in its application that HD could potentially attract hard to reach audiences (for example the young) to landmark programming that they wouldn’t otherwise watch. Although there was some evidence of this in the trial (significant minorities suggested they watched such programmes as Planet Earth and Bleak House because it was in HD) this is likely to decrease as viewers become used to HD and in our view the nature of the content itself is likely to remain the key driver to watching. The BBC Executive also submits that a BBC HD service could bring the family/community together around bigger screens. Again, content is most likely to be the driver for choosing to watch in this way or not. The BBC Executive also asserts that the ‘more immersive’ experience of HD viewing is likely to offer educational benefits. This may be true in a few examples but is not in our view a key reason to see HD as having a societal benefit. Does this specific BBC HD channel offer societal benefits? In the Trust’s view, the main societal benefit of the proposed BBC HD service is in making a beneficial consumer development available to all without subscription. The most compelling argument for societal benefit from a free-to-air BBC HD channel is that it can help ensure universal access to HD’s consumer benefits. Although we do not consider it necessary for Freesat and Freeview to provide a comparable range of services as the pay-TV platforms, the provision of an HD offering on them would minimise the extent of any potential HD digital divide. Launching a BBC HD channel that is free at the point of use on all appropriate platforms would help ensure that the benefits of HD are as widely shared as possible and not just the preserve of those who are willing or able to pay the subscription. This goes to the heart of the BBC’s digital purpose "helping to deliver to the public the benefit of emerging communications technologies and services". 65 Here we consider this purpose, and the extent to which the service would serve the BBC's other public purposes. The digital purpose In so far as the service has considerable appeal to consumers, there is a strong argument for it being made as widely available as possible. The provision of a free-to-view HD channel by the BBC is likely to have a significant positive effect on the take-up of HDTV. Not only would it help meet potential audience demand (as discussed above) but would also stimulate demand for and production of HD capable set-top boxes and encourage other broadcasters 66 Spectrum estimate that ITV would maybe consider a free channel offering when penetration of HD enabled households reaches 30 per cent in 2012. 67 Stakeholder responses were taken into account in reaching this view. to enter the market with free-to-view propositions. In turn, in so far as HD would help drive the take-up of MPEG-4 digital boxes, further public value would be likely to be created through the more efficient use of spectrum. The channel could also help enhance Freesat as an alternative free-to-view platform. We consider each of these points below: o Stimulating audience demand – As discussed above, the Trust's HD research found significant interest among consumers in accessing HD at reasonable cost. The provision of a free-to-view channel offering the best of the BBC could therefore have a major impact in encouraging consumers to upgrade their equipment to receive HD. Industry stakeholders representing both consumers and manufacturers strongly believed that just the presence of a single free-to-view offering from the BBC would be sufficient to encourage take-up. Not only would the creation of a BBC HD channel in and of itself help stimulate demand, the BBC could be expected to play an active role in educating the public in HD and how to get it. Consistent with other studies, the BBC Trust’s research and consultation revealed a significant lack of knowledge regarding the mechanics of receiving HD television. The Trust’s HD research revealed, for example, that only 32 per cent of the sample was aware that an HD-ready TV and an HD-capable set- top box and a subscription were currently necessary to be able to watch HD television pictures. This fell to 24 per cent amongst women and 21 per cent amongst under 35s. Launching a BBC HD channel, with the subsequent marketing and audience information support the BBC should provide, would go a large way to tackling this lack of knowledge about HD. o Encouraging other PSBs to enter the HD market earlier than they otherwise would66 – The entrance of the BBC into the HD market, and the creation of an installed base of HD consumers on free-to-view platforms, would clearly increase the likelihood of other PSBs providing their own HD offerings. By expanding the market for HD televisions and set-top boxes and in educating the public about the potential benefits of HD, the BBC would help create an HD market that has the potential to become commercially viable sooner rather than later.67 So the BBC's move would facilitate the creation of public value beyond the BBC. As noted in section 5, other PSBs are exploring HD. Although no firm plans have been announced, the BBC’s proposed service may partly underlie this potential enthusiasm. o Helping drive the take-up of MPEG-4 digital boxes on free-to-air platforms – The necessity of having an MPEG-4 capable box to receive free-to-air HD transmissions will provide an incentive for viewers to upgrade their current MPEG-2 SD set-top boxes. As we discuss in section 10, this introduces the potential for more efficient use of spectrum capacity in the future. The speed and extent to which this 68 BBC On demand PVA, Sparkler, November 2006 could happen will partly depend on the timing and ability of the Executive to launch a nine-hour rather than four-hour service on the DTT platform. o Enhance Freesat, potentially accelerating the take-up of this platform – For consumers wishing to remain with free-to-view television, the proposed service may encourage the take-up of Freesat, with the proposed BBC HD channel enhancing the platform’s consumer proposition. This is an important consideration with Freesat forming a key part of the strategy for facilitating universal access to digital television. The provision of a more limited four-hour HD channel on DTT would make substitution to this platform more likely for those who value HD, as would the platform’s capacity to accommodate a greater number of HD channels. 32% 6% 21% Since the digital purpose could justify involvement by the BBC in a wide range of new technologies, it is important to consider in any given instance whether the BBC should take a lead. It is by no means clear cut that people want this. The Trust's HD research found that, although a third felt the BBC should take the lead in pushing forward new developments, 52 per cent felt that the BBC should either be selective in going into new technology or not introduce it. The BBC should take the lead in pushing forward new developments in broadcast technology and prioritise investment in this area The BBC should let others take the lead in developing new broadcast technology but also make sure it does not fall behind The BBC should be selective and only invest in core areas of new broadcast technology The BBC should just concentrate on improving the service they already offer 31% Don't Know 7% Source: Trust HD Research, BMRB, May 2007 This desire amongst the public for the BBC to keep up with, but not necessarily leading, in technology was also evident in the research carried out by Sparkler for the On Demand PVA.68 “Nonetheless, most of our sample thought that the BBC should do its best to keep up where possible with advances in technology, especially where these help advance the quality of content. There seemed to be a line drawn between this approach and the idea that the BBC could be a ‘leader’ in technology however. The opinion of the majority of the people we spoke to was that in order to be a leader, an organisation needs to have ‘at any cost’ attitude. It was their opinion that the BBC cannot afford to have this kind of attitude.” However, during our consultation a number of stakeholders expressed the contrary view. They saw the BBC as having a lead role in developing the UK market for HD (through taking the lead on technological progress). The Executive also cites research for the DCMS during Charter Review which suggested that more than two thirds of respondents expect the BBC to be a “responsible leader” in helping the public to adopt and use new digital technologies. On balance, we are mindful of the centrality of television to the BBC's role and the potential significance of HD to this medium, and conclude that the BBC's participation in HD is consistent with this purpose. Impact is limited in the short term by cost of access and DTT constraints. But it will rise in the long term as costs and constraints lessen. Other public purposes In addition to the digital purpose, the BBC Executive suggests the BBC HD channel would promote the following other public purposes. o Stimulating creativity and cultural excellence; o Bringing the UK to the world and the world to the UK; and o Promoting education and learning. We have given less weight to claims advanced in relation to these public purposes. o Stimulating creativity and cultural excellence – The BBC Executive asserts that this public purpose is promoted by the extra creativity that HD enables; shooting Planet Earth in HD for example created filming opportunities that would not have been possible with SD. We acknowledge these creative benefits are real, but note they are inherent in the task of producing content in HD, not in its distribution. They do not need a BBC HD channel to launch per se to be realised, although the launch of a BBC HD channel is likely to accelerate the level of HD production. o Bringing the UK to the world and the world to the UK – The BBC Executive suggests that producing in HD ensures the UK's creative industries remain competitive in the world marketplace. We agree that this is likely to be a real benefit, but not one that is dependent on the launch of the channel, with BBC production already moving to HD. o Promoting education and learning – As mentioned previously, the BBC Executive makes the case that HD can offer a more immersive experience that is likely to increase the impact of public service programming. Accordingly, such programmes may be viewed by those who may otherwise have not done so due to the greater viewing experience. Whilst accepting that this may be true, we think it is likely to be a minor consideration and one that, in any case, would diminish over time as people become accustomed to the quality of the HD experience and again make their viewing decision based on the underlying content. Finally, in considering societal value, it is worth considering the benefits of the HD channel in terms of major events. The channel could undoubtedly come into its own and be highly 69 The reason for the absolute levels being so much higher in the Human Capital survey may be a feature of it being an intensive deliberative experience where there was a greater focus on the total benefits of the channels. 70 This overall BBC HD channel figure is a ‘weighted’ figure derived from the Willingness To Pay figures for HD versions of the component SD channels from which the content is derived. valued by citizens for national events such as the Olympics – this is an area where people expect the very best from the BBC and where HD quality is recognised as being a major asset. This could be an area where the proposed HD channel generates high public value. This is also a factor, although a lesser one, in not delaying consideration of the HD proposal. C. Worth There is evidence that consumers place a significant monetary value on the experience of the BBC HD channel, with an uplift of around 20-30 per cent over the SD equivalent. Methodology To obtain some quantitative measure of how much the proposed channel is likely to be worth to people, respondents in both the RQIV research and the Human Capital deliberative juries were asked to imagine that they no longer had to pay the licence fee and to then state what they thought each BBC service was worth to the ‘average person’ in both SD and HD. Results In both surveys the channels in HD were given an uplift in worth compared to their SD equivalents, suggesting that having HD versions are of some value to people. In the RQIV work the HD version for each channel goes up by an average of around 70p (approximately a 15-20 per cent increase on the SD version). In the Human Capital work it goes up by around £2 (a 30 per cent plus increase).69 The BBC Executive has taken the RQIV worth figures (the lower of the two, so arguably a more conservative estimate) and valued the nine-hour BBC HD channel at between £[4.00] and £[6.00] a month, depending on which platform it is carried on.70 This overall value is based on a weighted average of the worth of the channels from which the content derives. The Executive then goes on to subtract content value (as this is already allowed for in the SD versions of the programmes) to attempt to quantify the extra value added by the new HD channel. This extra value consists of ‘HD value’ (the value inherent in it being an HD picture and sound) and scheduling value (what is added by having the chance to watch the programme at another time). The result of this subtraction of content value is illustrated in the chart below illustrating this Incremental Consumer Value (ICV) on different platforms. It is much lower on the four-hour version as there is much less programming and no added scheduling value. Nine-hour DTT Four-hour DTT The BBC Executive estimates that this ICV would gross up to around £90m pa by 2012 for a full nine-hour service on all platforms and £[60m - 80m] if there is a mixed nine-hour/four- hour service. This is based on their current projections of HD take-up. This likely benefit would considerably outweigh the actual costs of distributing the HD channel and supports there being a significant net benefit to the consumer. 6.3.2 Are there any risks or negative impacts associated with the proposed services? Launching a BBC HD channel may be seen as the BBC super-serving the technology-rich. There is a risk that this proposal could alienate a number of licence fee payers, either because they are not interested in HD or because they object to the costs, particularly those involved in accessing the overnight DTT service (with the effective consumer need for a PVR). Launching the BBC HD channel could be seen as further super-serving the technology rich. Furthermore, although the BBC HD proposal is true to the spirit of platform neutrality, it could – as we have noted in section 5 – give rise to a three-tier service in the four-hour overnight scenario. There is likely to be a sense of frustration on the part of consumers who have already bought TVs which are not HD-ready, or set-top boxes to receive DTT, who might see those purchases as obsolete. Related to this is the risk that the four-hour DTT service could be regarded by some as low quality and frustrate people, particularly with the difficulties involved in having to record the output overnight. DTT reeSat PaySat DTT PaySat x x x x x x x x . 2 x F Cable/IPTV FreeSat Cable/IPTVCable/IPTV Scheduling Scheduling value value HD value HD value 71 BBC Executive clarification Furthermore, it is likely that the benefits of HD would mainly be experienced on the main set in the house which is likely to be the larger set with the most up-to-date equipment. This carries a further risk that it will make the SD picture on other sets look worse in comparison and may further frustrate viewers. 6.4 The public value forgone on DTT In the Trust’s view there is very little negative impact from the suspension of other BBC services to provide the four-hour overnight service on DTT. The Trust accepts that the impact on viewers' experience of the possible withdrawal of services from Freeview overnight, to provide capacity for the four-hour HD service, is likely to be very small. As set out in the BBC Executive's clarification, BBC Four closes down at 04.00 anyway, BBC Parliament is largely showing repeated content and two of the interactive streams are not always fully utilised. Even when there is some impact on people who are not able to access the services, the degree is extremely small – a loss of around 12,000 in reach/2.8m viewer hours (i.e. hours consumer annually) for the linear channels and 12,000 reach/0.15m hours for the BBCi services.71 We also note that the content shown at these times is mostly repeats anyway and that for major breaking new stories the news loop would be reinstated (and that in any case BBC News 24 would be unaffected). However, apart from the actual experienced impact of the loss of these services at this time, it needs to be considered that there may be some objection in principle to losing BBC services. This was explored in the Trust’s HD research where respondents were told about the loss of the linear channels (but not the BBCi services as this was felt to be too abstract to explore in a brief interview) and asked whether they had any objections in principle. It appears that the degree of objection in principle is small. Only 10 per cent of the sample said that they objected, and this level was found across all demographic groups. On further exploration of this objection it was found that it was more the case that they didn’t see any particular need for having a BBC HD channel at all than any particular objection to the loss of the particular services. 6.5 What would be the impact to the consumer and citizen if the proposed services did not launch? The key risk in not launching an HD channel is that the BBC would be seen as falling behind the pace of technological developments in a key aspect of its output, the quality of the TV picture. It might also hold up the development of HD in the UK. There could be significant consumer dissatisfaction if their investment in HD-ready sets is not matched by the ability to get free-to-view HD content – and the BBC could be the focus of this dissatisfaction as a result of its previous track record in technology and its licence fee funding. This anger could be exacerbated as more people get larger sets and the SD picture consequently appears significantly worse. There is also an argument that this frustration could be particularly acute amongst younger people who are more likely to take technological progress for granted (and have experienced HD through gaming). These are a group who are already lower than average consumers of the BBC. This is not only an issue of the BBC’s image amongst licence fee payers. More broadly, the lack of a free PSB alternative to the subscription model of receiving HD could hold back or at least slow the UK development of this technology – the BBC would be a key plank in both educating the public about the benefits of HD and encouraging its take-up. In addition not launching an HD channel could also slow down the rate of take-up of Freesat, which is a key part of the strategy for facilitating digital access. 7. Reach Summary We consider the proposed service to deliver medium public value in terms of reach. Assuming the nine-hour service is provided on Freeview, the channel would reach 22 per cent of households – which compares favourably with other digital TV services. Reach of the proposed service is primarily driven by substitution from the originating SD programme, resulting in a neutral overall impact on reach for the BBC. Although viewing behaviour is not expected to change materially in the short to medium term, with viewing choice driven by content rather than HD’s technical quality, there is a potential risk to reach and share in the longer term if audiences come to expect HD and can access it readily elsewhere. The four-hour overnight DTT service would deliver medium to low reach. The unsociable broadcast time would result in minimal ‘live’ viewing. Most viewing would be expected from PVR-enabled households who can time shift their consumption. However, few households currently do this and the incentives provided by the limited four-hour service are unlikely to change this behaviour. In contrast, reach to the nine-hour service is considered medium-high, with greater content choice and peak time broadcasting contributing to higher levels of expected viewing. Provision of the channel on cable and pay-satellite would help maintain reach on these platforms, on which the BBC performs less strongly than on Freeview. Reach would be limited by the cost of access. Accordingly, we would expect the service’s potential reach to increase as the cost of set-top boxes fall. Reach L M H Nine-hour service on DTT Four-hour overnight service on DTT Nine-hour service on cable & satellite Overall with DTT four-hour overnight Overall with DTT nine-hour 7.1 Approach Reach is a measure of the number of people who access BBC content and has been adopted by the BBC Trust as part of its framework for the assessment of public value. Since the BBC’s public purposes cannot be achieved without the audiences consuming the BBC’s content, the number of people using BBC services is a central consideration. While reach is the primary indicator of usage, in considering the public value of a proposed service it may also be relevant to look at other factors such as the overall volume of consumption, the reach of specific types of programming and reach to under-served audiences. In this case, we have not analysed volume of consumption since the viewing of BBC television is assumed to remain constant in the short to medium term whether or not the BBC launches an HD channel. Also, since evidence is not available, we have not analysed the impact of HD provision on the reach of the BBC to under-served audiences. There is some circumstantial evidence that HD could help to attract younger viewers to BBC content that they might not otherwise consume, but we have not placed any weight on this. Similarly, and as discussed in section 6, while there is some evidence that some programmes – such as natural history – are regarded by audiences as especially compelling in the HD format, we do not consider that HD will be a significant factor in achieving higher reach for such genres. Accordingly, we have focused on the following key questions: o What is the state of current demand for HDTV? o How will demand for HDTV develop? o How many viewers would the proposed service reach? We paid particular attention to technological developments which will influence the take-up of HDTV. These include the penetration of set-top boxes capable of receiving HDTV signals and the impact of providing HDTV on different TV platforms, i.e. satellite, cable and terrestrial. Because the BBC Executive’s proposal presents two different scenarios for the provision of HDTV on digital terrestrial TV, we have considered the proposal as a whole and in the following constituent parts: o Nine-hour service on DTT; o Four-hour overnight service on DTT; o Nine-hour service on cable and satellite. We have drawn on the following sources of evidence: o The BBC Executive’s projection of the reach of the proposed HDTV channel (prepared by Spectrum Strategy Consultants) – This provides forecasts of the channel’s reach up to 2015, under the two different scenarios for the provision of HDTV on DTT. The model was our primary source of evidence. We focused on validating the assumptions underlying the forecast in order to form a judgment on whether it is suitably conservative. 72 HDTV: A Deliberative Research Project by Human Capital, July 2006. 73 Advice to BBC management on the potential market impact of the proposed new HDTV channel by Spectrum Strategy Consultants/Reckon LLP, December 2006. 74 BBC Trust HD Research by BMRB, May 2007. 75 Advice on spectrum usage, HDTV and MPEG-4 by Sagentia, June 2007. o Other evidence supporting the BBC Executive's application. In particular, we referred to the Human Capital deliberative research72 and the advice to the Executive on the potential market impact of the channel.73 o Audience research74 and the technical advice75 commissioned by the BBC Trust for this PVA. o Independent market research reports, as referenced in the following analysis. The market forecasts used by the BBC Executive and those from other sources are all predicated on the assumption that the BBC does provide an HD service. No alternative market scenarios are available so it is difficult to quantify the impact of considerations such as the BBC’s influence in driving the adoption of the HD technology, the impact of the proposed HD service on the BBC’s aggregate reach or the consequences for the DTT platform should the service not be provided at all. 7.2 Assessment We assess the reach of the proposed HD channel as medium to high, assuming the provision of the full nine-hour service on DTT. The channel would be expected to reach 22 per cent of households by 2012, 62 per cent of HD-enabled households. This compares favourably with the reach of other digital services. Our assessment falls to medium for the scenario where only a four-hour overnight service is offered on Freeview. The channel has an important role to play in safeguarding the reach of BBC content on pay-TV platforms, where the BBC faces competition from other HD propositions. The current rate of adoption of HD-ready TV sets, as well as the expressions of interest in receiving HD from respondents to the Trust's HD research, lead us to conclude that there is demand for HD but it is not yet seen as a must-have. Consumers are likely to view HDTV as increasingly appealing as they become more exposed to HD in other entertainment products. In the long-term, i.e. beyond our five-year forecast period, a BBC HD channel could play a valuable role in maintaining the BBC's aggregate reach. Reach assessment by platform Service component % reach in 2012 (all TV households) Assessment conclusions Nine-hour service on DTT 5.5% • Medium to high. • The service would drive adoption of HD by Freeview households by providing an attractive, free- to-view channel to viewers and mass production incentives to manufacturers of set-top boxes. • DTT has an important role to play in driving the reach of BBC content and this is particularly so for the nine-hour proposition. 1.2% • Medium to low. • Difficulties accessing the service but there are some incentives for consumers to upgrade. • Manufacturers likely to provide PVRs which would make accessing the content relatively seamless for viewers. • The service would offer the best of the full channel’s schedule. The table below summarises our reach assessment by the constituent parts of the service. Four-hour overnight service on DTT Nine-hour service on cable & satellite 15.7% • Medium to high. • These platforms are central to delivering the channel’s reach in the absence of a full service on DTT. • An HD proposition from the BBC would help maintain the BBC’s reach and share on cable and satellite if the availability of HD content on these platforms begins to drive viewers to HD channels in preference to standard definition channels. While the four-hour overnight service on Freeview is a constructive response to capacity constraints, it is a second-best option for the platform which makes the biggest contribution to the BBC’s reach. Should the HD channel be approved, it should be a priority – subject to value for money considerations – to achieve at the earliest opportunity a service proposition on Freeview equivalent to that on cable and satellite. 7.3 Key questions to determine public value 7.3.1 Introduction In this section we present our detailed assessment of reach including analysis of the BBC Executive’s reach forecast. First, we take stock of current demand for HDTV. Then we 76 DSGI press release, March 2007 consider how demand will develop and how many viewers the proposed service may reach. In doing so, we draw on the BBC Executive's forecast which is built on two sets of assumptions: about how the market for HDTV will develop; and assumptions about how a BBC HD channel would perform in this environment. Our main focus in evaluating these was to assess the robustness of the assumptions in terms of evidence supporting them. In order to guarantee due care in the expenditure of licence fee money, we seek to ensure that a conservative approach informs decision-making. In reviewing the forecast, we concluded that the assumptions were suitably conservative and we have made no variations to the model on this occasion. We explain how we reached this view in the appropriate places below. 7.3.2 What is the state of current demand for HDTV? There is clear demand for HDTV at this early stage of the market, and the rapid growth of HD-ready TV sets points to significant latent demand. We noted in section 4 that sales of HD-ready TV sets are growing rapidly. According to the Curry's group, more than 4m HD-ready TV sets will be sold this year – up from 2.4m last year.76 Over half of high-end TV sets sales are now of HD-ready TVs (see chart below) and more than 11m households are forecast to have HD-ready sets by 2010. High-end TV set sales Note: (% HD ready/non-HD ready), January 2005 - December 2006 It is unclear to what extent consumers are making active decisions to buy HD-ready versions. All LCD sets with screens larger than 26” sold in the UK are now available only as HD-ready, which suggests that there could be a measure of inertia in HD set purchases. 77 PSB Broadcasters HD DTT trail Wave 2 (August 2006). Against this, though, one stakeholder told us that consumers are now positively demanding HD-ready TVs. The rapid growth of Sky's HD package confirms that there is real demand for HDTV. In just over a year, it has some 300,000 subscribers – 17 per cent of these reportedly new to Sky. The Trust's own HD research, as we noted in the previous section, found a large majority of respondents expressing an interest in gaining access to HDTV. But, as we also acknowledge in section 6, consumers do not yet see HDTV as a must-have at this very early stage in the market. As they upgrade their TV sets and become exposed to other HD entertainment products such as games and DVDs, demand for HDTV services will probably grow. 7.3.3 How will demand for HD develop? HD will become established as a broadcasting standard during the forecast period, but not the definitive standard. The majority of pay-TV subscribers will be using it by 2015. An HD service from the BBC would be key to driving take- up of the format on Freesat and Freeview. Assessment of the BBC Executive's market forecast The table below presents a brief overview of the BBC Executive’s assumptions on how the HD market will develop, together with our evaluation of the assumptions. Overview of BBC Executive assumptions on HD market Assumption Comments TV viewing hours will stay constant .. New media products and delivery channels will have a negative impact on television on viewing habits. But non-linear TV viewing will help sustain TV viewing hours. Viewing remains content driven .. Supported by evidence. The 'wow' factor may drive viewing towards HD but in the longer term the viewing behaviour will return to established, content-driven patterns.77 As DSO approaches households switch to free platforms .. Freesat approved .. HD is the new broadcasting standard .. HD will become well established as a broadcasting standard but it will continue to be a 'nice to have' offering, at least in the short to medium term. Consumers do not see HD as relevant to some types of content (such as news & current affairs, Confirmed by current platform uptake trends. In contrast to the US, where pay-tv is used by nearly 80 per cent of households, the UK PSBs’ free-to-view offerings ensure that the free-to-view platforms provide competitive propositions, at least for those households who place a lower value on premium channels. 78 Human Capital, ibid. 79 “We see HD as the chicken-and-egg problem. If there’s not a lot of HD content, there’s not a lot of HD customers, so we have to make sure we balance the cost of programming against the number of customers” Casema, MSO Netherlands quoted by Informa. 80 “HDTV in Europe – Ready for Take-Off?”, Idate Oct 06. religion and children’s).78 But this could change. HD from BBC increases overall HD take-up .. Likely to be the case as availability of high quality content will make the HD offering as a whole more attractive. The extent of this is unclear, although research indicates that 26 per cent would take up HD sooner if the BBC were to offer a service (Lektrak/Consumerscope Aug 2005). On free-to-view, the presence of a BBC service is key to driving down set-top box prices. HD from BBC encourages HD from other PSBs .. A BBC HD channel would be likely to provide a major stimulus to the creation of a free-to-view HD market. However, capacity constraints and lack of an HD advertising premium may delay entry by other PSBs until HD gains critical mass. HD take-up in the UK will follow US patterns .. Out of three advanced HD markets (US, Japan, Australia) the US is the closest comparator. However, the poorer picture quality of SD in the US means the quality gain in upgrading to HD is greater. Households with PVRs 25 per cent viewing time-shifted .. Based on TRP data, specific to time-shifting by viewers to BBC One and BBC Two. We believe manufacturers would respond to the provision of a four-hour overnight Freeview service by offering PVRs which make accessing the content seamless. Time-shifting of the overnight service could therefore be greater than forecast. No substitution between Freeview and Freesat .. Marginal substitution may occur in the short to medium term. Will depend upon the extent of HD content available on Freeview. But the different value proposition offered by Freeview may mean it retains viewers. The role of the BBC in building the market A key assumption behind the BBC Executive's forecast is that the provision of a BBC HD channel would in itself stimulate the market. This is because BBC entry would solve the chicken-and-egg problem, whereby broadcasters are reluctant to enter the market until there is a sufficiently large installed base of customers able to receive HD transmissions.79 The US experience shows that adoption of HD by consumers takes off only once a large and varied body of content becomes available. The launch of a free-to-view channel offering a mixed genre schedule of high quality programmes could provide this stimulus. Market analysts see the BBC’s role as a trusted innovator and its significant marketing and technology-promotion capabilities as crucial to encouraging the growth of the HD market in the UK and Europe.80 In particular, the BBC may help address problems standing in the way of successful market development: standardisation and costs. To the manufacturers, the 81 “High Definition set-top boxes and chipsets – The European Market”, Screendigest May 07. 82 Ibid, Screen Digest May 07. 83 GFK Lektrak/ Consumerscope Aug 05. 84 “HDTV and DTT: The Impact Of Platform Evolution Decisions On HDTV Adoption Scenarios”, Strategy Analytics Mar 07. BBC’s entry would provide incentives to mass produce set-top boxes and considerably reduce the market entry risk. It would also help coalesce standards around codec (MPEG-2, MPEG-4) and format (720, 1080i, 1080p) choices.81 In the absence of BBC entry, HD would continue to be driven by pay-tv providers. This would limit the incentives for the development and manufacture of inexpensive set-top boxes. However, it is important to note that the price of an HD DTT set-top box is not expected to fall to today’s SD box levels until 2012 or later (see chart below)82. While we agree that an HD channel from the BBC would encourage HD take-up, the extent of this impact should not be overstated. Survey data indicates that while 26 per cent of respondents would replace their TVs for HD-ready sets sooner if BBC offered an HD service, 37 per cent would not.83 Viewers’ interest wanes further once the necessity of acquiring an additional STB and subscriptions (on pay-tv platforms) are made clear. On cable and pay-satellite, HD will continue to spread with or without a BBC service. In the short to medium term pay-tv operators are likely to use HD in order to extract customer value and differentiate their offering in an increasingly competitive environment. This will involve charging a premium during the first few years – only rolling it out to basic packages by 2015.84 85 Strategy Analytics Nonetheless, research suggests that entry by the BBC would encourage both take-up and provision of HD services, in effect creating a virtuous circle. This could be crucial to the future of HD on free-to-view platforms, especially Freeview. By 2020, Strategy Analytics forecasts that 90 per cent of UK households are likely to receive HD if it is available on Freeview, compared to 60 per cent if it remains available solely on cable, satellite and IPTV.85 Conclusions on HD take-up Over the next few years HD will become an increasingly widespread experience, accessed through a variety of media including TV, DVDs and games. TV will clearly form part of this trend – with the BBC Executive’s model forecasting about 35 per cent of households being HD-enabled by 2012. We consider the Executive’s forecasts to be a reasonable view of the likely development of the UK market. If anything they are conservative for the time period where benchmarks from other sources (e.g. Screendigest, Informa) are available, that is until 2010 (see figure below). Uptake of HDTV in the UK UK HD uptake as % of all TV HHs60% Source: Screendigest, Informa, BBC As audiences become accustomed to better image quality, and as the average size of displays increases, HD will become very widely used for the genres that benefit most from it such as film, nature programmes and sport. However, not all genres benefit equally from HD and, for the time being at least, a large proportion of viewers are currently satisfied with the quality of SD pictures. Consequently, we believe that HD should not be seen as the new standard in broadcasting in the way colour TV once was, at least not in the short to medium term. A more appropriate comparison would be drawn with the move from 4:3 to widescreen – appreciably better for some content and adopted by many viewers, yet not of such magnitude as to cause a wholesale change. 86 Strategy Analytics The take-up of HDTV will vary by platform reflecting the relative costs of HD provision, the number of HD services on each platform and the preferences of viewers as determined by their platform choice. Take-up will be lowest on Freeview. Users of this platform are likely to be those least interested in investing time and money to access HD services, and the offering available to them will be limited as a result of spectrum constraints and supply side costs. Under the four-hour service the take-up will remain below 20 per cent even by 2015, with HD remaining a niche proposition. In contrast, the majority of Sky viewers will have access to HD services by the end of 2012. HD penetration by platform [table redacted] In the long term, though, we would expect penetration to be high across all platforms. – reaching 50 per cent of households by 2015 and up to 90 per cent by 2020, if it is made available on Freeview.86 If so it could, by then, become the de facto standard for many content types. 7.3.4 How many viewers would the proposed service reach? The proposed BBC HD service would reach 22 per cent of households by 2012, assuming provision of the nine-hour schedule on Freeview. This compares well with other digital TV channels. Assessment of the BBC Executive's performance forecast The table below presents a brief overview of the BBC Executive’s assumptions on the performance of a BBC HD channel, together with our evaluation of the assumptions. Following the table we provide detailed analysis of the assumptions. Overview of BBC Executive assumptions on performance of a BBC HD channel Assumption Comments BBC reach will differ by platform .. Historically, the BBC’s reach has varied by platform. Reach is highest on analogue and DTT, and lowest on pay-TV platforms. Evidence suggests this trend will continue. BBC HD reach no greater than BBC SD reach .. 95 per cent of content on the BBC HD channel are HD versions of programmes broadcast in SD on other BBC channels – mainly BBC One and BBC Two. HD reach would be unlikely to exceed the originating channel's reach. Some genres may see initial gains, due to the 'wow' factor, particularly if there are no comparable offerings on other channels. Viewing behaviour of HD households the same as that of the general population .. Increasingly likely to be the case as HD penetration increases. However no data was submitted on the behaviour of different demographic groups. Forecasted reach by platform follows BBC One and BBC Two .. For each platform, reach is adjusted for the number of competing HD channels available on it. Correspondingly, the 87 WSJ 28/02/2007. historical trends propensity to consume BBC HD is forecast to decrease over time on digital cable and pay-sat but stay constant on DTT and Freesat. Content driven: new channel won’t affect overall consumption of BBC TV – substitution NOT addition .. Content is and will remain the key driver of viewing choices for the vast majority of people – after the initial 'wow' factor. Viewing of a BBC HD channel would be substitutional rather additional. As such, the channel would not significantly impact on overall consumption of BBC content. When simulcast, HD watched in preference to SD .. Reasonable. However evidence from US suggests that, in the absence of a clear electronic programme guide, force of habit and convenience encourages up to 50 per cent of viewers to stick with SD.87 DTT four-hour take-up lower than nine-hour .. The ability to time-shift content would increase the take-up of the four-hour overnight service. However, the need to purchase an STB incorporating a PVR means that the four-hour service would still be less attractive than the nine-hour channel. HD DTT four-hour viewing is 85 per cent time-shifted and 15 per cent real time .. Only a small minority of viewers would be likely to watch the overnight service live. Conclusions on projected reach We agree with the overall reach and share conclusions made by the BBC Executive. However, while the BBC Executive’s forecast focuses on reach and share among HD enabled households, we prefer to consider reach and share among all TV households, since any BBC service needs to be addressed to all licence fee payers. As such the forecasted take-up of HD services is crucial to assessing the public value of the service. It is in this area where most uncertainty exists. Assuming provision of the nine-hour service on Freeview, we would expect the channel to reach 22 per cent of [all TV] households by 2012. [For the four-hour service, we would expect the channel to reach 18% of all TV households by 2012. For HD households, we would expect the reach figures to be 62% and 54% for the nine-hour and four-hour service respectively.] (see tables below) While the reach figures in the tables above may appear low, they are respectable when compared to the reach of some existing BBC digital services. The table below highlights how most services enjoy lower reach than the proposed HD service (with four-hours on DTT). This needs to be seen in the context of value for money (see section 8) and the public value derived from the consumption of BBC content as a result of each service’s reach. But it nonetheless puts the BBC HD forecasts into context. Reach comparison Average weekly reach BBC One BBC Two BBC Three BBC Four Cbeeb News24 BBC Parliament BBCi 24/7 BBCi eTV DTT 83.4% 67.3% 19.9% 9.2% 9.0% 8.8% 0.1% 35.6% Pay-sat 75.6% 46.7% 15.5% 4.1% 9.4% 6.0% 0.3% 43.0% 13.0% Cable 73.4% 48.1% 16.3% 5.6% 9.2% 8.7% 0.3% 34.6% All digital households 77.5% 53.0% 16.3% 5.5% 8.9% 7.4% 0.3% 35.0% All UK households 80.3% 59.7% 11.5% 3.9% Projected reach of BBC HD channel, 2012 [tables redacted] CBBC 9.8% 4.5% 4.8% 5.8% 3.9% 6.3% 5.2% 0.2% 27.1% 10.1% Note: BBCi reach is not reported on a consistent basis Source: BBC data BBC reach will continue to be under the greatest pressure on cable and pay-satellite and a BBC HD channel would be important in helping to maintain it. It is also likely that other PSBs will create HD channels on these platforms, driven by competition and unconstrained by higher distribution costs. If it is seen as necessary to offer a BBC HD channel on cable and pay-satellite to protect the BBC’s long term reach on these platforms, it would also be desirable – subject to value for money considerations – to provide it on free-to-view platforms in order to uphold the principle of universality and equitable access by licence fee payers to licence fee funded services. The Trust considers that there is public value in the Executive’s proposals from a reach perspective – particularly when considering the reach of a full nine-hour channel on Freeview and Freesat in HD enabled households. The four-hour overnight service cannot be considered a channel as would be commonly understood. Instead it is more like an on- demand proposition, relying on the use of PVRs for 85 per cent of its viewing. Its reach would necessarily be low and concentrated among dedicated viewers. As such its main value would lie in preserving the notion of universal access to HD on all platforms in the context of otherwise prohibitive capacity constraints on DTT. Based on available information and the BBC Executive’s submission, the Trust does not believe the proposals would have a significant impact on the reach and share amongst under- served audiences. 7.4 Risks The media marketplace, and the HD sector itself, are changing rapidly. New technologies, changing customer behaviour and the evolving competitive environment all create uncertainties. The BBC Trust’s role as the guardian of public value means we must consider any risks connected to licence fee expenditure while keeping in mind that risk is inherent in any innovative enterprise. A significant uncertainty is that concerning the ability to overcome spectrum capacity limitations on DTT in order to accommodate HDTV. We discuss this in section 10. Below we give a brief overview of how other potential risks may affect reach. Market risks o The media revolution – Under this scenario the new media revolution picks up pace and leads to a loss of reach and share for all types of traditional broadcasting. With user-generated content dominating and audiences focusing on participation and choice rather than high visual or production quality the BBC would lose reach. The HD service would suffer along with the rest of the BBC’s offering; however it might help slow down the decline and retain share among viewers. We believe this extreme scenario is unlikely to materialise. However, the democratisation of content creation will increasingly challenge the broadcasters’ strength and necessitate investment in quality. o The next big thing – In an era of rapid technological progress it is conceivable that another offering is developed over the next ten years or so which leaves HD technology becoming obsolete before it is widely adopted. While we can see no indication of any other contender to HD on the horizon, the time-scales involved make for uncertainty. However, in the absence of obvious alternatives excessive caution would seem unjustified. BBC performance o Demographics – Should HD take-up remain limited, with most viewers satisfied with the current SD offering, the BBC would end up providing a premium service which the majority would feel unnecessary, yet were funding. There would be limited reach for the BBC HD channel, which would be viewed only by those willing or able to afford to upgrade their receiving equipment. This would increase the potential inequity of the service. o The wrong standard – As discussed in section 6, the cost of additional set-top boxes needed for HDTV is a significant factor for most households. If the BBC’s market impact proves insufficient and the codec (MPEG-2 / MPEG-4) and resolution standards chosen differ from those adopted internationally, the price decreases envisaged may not materialise. This would slow down the take-up of HD and affect 88 Strategy Analytics. 89 PSB Broadcasters’ HD trial – Wave 4 results. reach. Since the BBC is aiming to apply international standards to its channel, we view this scenario as unlikely. o Free ride – The BBC has a reputation for innovation which needs to be balanced against stewardship of licence fee money. There is a considerable level of expectation in the HD industry that the BBC will lead the implementation of HD broadcasting in the UK and Europe. Other PSBs may well delay their own HD services, learning from BBC experience and entering the market with significantly lower costs, having seen the actual demand for the HD services. This risk is inherent in the digital purpose. 7.5 Counterfactual: What would happen to reach if the proposed service did not launch? If the proposed service did not launch, there would be a long-term risk to the BBC’s reach. In the absence of a BBC HD channel, HD would be available on pay-TV platforms. Public support for the licence fee may diminish as people become increasingly used to subscription-based services. HD take-up would be slower, with 40 per cent of the population remaining without access to HD content. If the proposed service did not launch, there would be little impact on reach in the short to medium term. This is because viewing to the channel is expected to be substitutional in the forecast period. Other PSBs would be less likely to offer an HD service in the short term without the BBC leading the way. While Sky and other pay-tv providers certainly would, their offering would be aimed at those customers willing to pay extra for HD, and would only spread to their basic packages by around 2015.88 While there is undoubtedly a significant proportion of consumers who are prepared to pay a premium for HD services, participants in the PSBs’ HD trial showed resistance to paying a premium – with only 41 per cent willing to do so.89 In the long term – perhaps 10 to 15 years – there could be significant risk to reach and indeed the viability of free-to-view broadcasting if no HD offering by the BBC is in place. As discussed above and in section 4, as consumers become more exposed to HD products the BBC’s SD transmissions could compare unfavourably – and, ultimately, this could translate into lost consumption. Without an HD channel from the BBC, the take-up of the technology is likely to be slower and driven by pay-TV as in the US. In the longer term this could have an effect on support for public service broadcasting in general but given the development of on-demand and other channels the effect is likely to be small. 90 2012; 100,000 in 2009. 7.6 Public value foregone in case of the four-hour overnight Freeview service The BBC Executive’s application and supporting documents indicate that there would be minimal loss of reach for the SD services that would be withdrawn to provide capacity for the four-hour overnight service. This would be far outweighed by the reach of the HD service. This is based on the historical data from BARB showing the reach of the affected services in the relevant time-slots and the Executive’s own forecasts of the DTT HD reach. Reach for overnight services Service All hours (DTT) 02.00 -06.00 BBC Four 1,485 11 BBC Parliament 23 1 BBCi news loops 794 11 BBCi non-news loops 92 1 Reach 000 % lost 0.74% 4.35% 1.39% 1.09% BBC HD 70090 Source: BARB, TRP 2006. Reach defined as 15 minutes consecutive viewing (BBCi 3 minutes) Note: BARB data under 100,000 viewers falls within statistical error range. The threshold for accuracy is 250,000. Based on the above, we agree that the impact on reach and share of the affected channels and the BBC as a whole would be very limited. 8. Cost and value for money Summary We consider that the service proposals will deliver high public value in terms of value for money. Non-DTT platforms represent better value for money than DTT since the distribution costs are much cheaper and there are no significant spectrum constraints. However, both the four-hour DTT proposition (which provides a cost-effective entry for the DTT market at £1m per annum) and the nine-hour DTT service provide greater consumer value than the cost of providing each service. We considered the value for money of the proposals in two ways: calculating a payback period for the costs incurred; and analysing the value yield of each scenario over time. Both methods show that the proposals represent value for money for the licence fee payer. Our analysis assumes that the BBC will not have to pay for spectrum capacity in order to accommodate the channel on DTT. The BBC has already started the gradual transition from SD to HD, not only in production but also in the considerable infrastructure required to support HD in the future. This strategic direction has been taken in response to the growing number of independent production companies that are choosing to film in HD; to future-proof BBC content and infrastructure; ensure the longevity of the archive; and enable BBC Worldwide to meet the demands of its overseas consumers where HD is fast becoming the production standard. While this production strategy will complement an HD channel, it will happen, for the reasons stated above, regardless of whether the proposed service is approved or not. Licence fee payers are funding this HD strategy. We believe they should therefore feel a tangible benefit. While spectrum capacity constraints may limit the BBC’s ability to provide a consistent service across all platforms, the proposals represent a cost- efficient way of allowing viewers access to BBC HD content with minimum disruption to other services. Assessment Value for Money Nine-hour channel Four-hour channel L M H Overall 8.1 Approach to assessment In assessing the public value of the proposed HD channel, it is only by considering the costs involved alongside the benefits anticipated that we can conclude whether the service would offer value for money. Where the benefits outweigh the costs there is value in the proposals. However, we must also consider the value to be created against that which might be created were the BBC to spend the required investment in other ways or to spend nothing – in other words the relative value. We considered the following key questions: o What is the cost to the BBC of providing the services? • How much will the services cost to deliver: - as a whole package?; and - as individual elements? • How does this compare with other existing BBC services? • Are there any indirect costs of the services? o Would the proposals deliver in the most efficient manner possible? • Could the stated objectives be met more cost-effectively? • Is there an alternative method of delivery which is more cost-effective? o Do the proposals offer value for money? • How does this compare with other options available to the BBC? • What value will be created for the proposed spend? • How does this compare with other existing BBC services? We have questioned the BBC Executive on its cost estimates in order to understand what they contain, how they have been prepared and the risks affecting different components so that we may come to a view on their reasonableness. In doing so we have not reproduced the BBC Executive’s modelling work in full but have taken some account of the internal financial controls operating within the BBC. We note that these processes are, more generally, subject to review by the BBC’s own internal audit function and also the annual external audit. The Trust itself also has an oversight role and requires the BBC Executive to account to it on how it has maintained its internal control function. In respect of the costing of the services provided by the BBC Executive, we note that should this PVT application be successful, the costs within this application will form the basis for agreeing any service licence budgets required in connection with these services. The costs presented in the application are the marginal costs to the BBC and not the full costs of the service (since some of the required infrastructure already exists within the BBC for other activities). This PVA considers the value created by the BBC undertaking the services proposed and hence it is the marginal cost rather than full cost that is more relevant to this assessment. In the course of our work we have shared cost information obtained from the BBC Executive with Ofcom who are undertaking the MIA. Our analysis assumes that the BBC will not have to pay for spectrum capacity in order to accommodate the HDTV channel on DTT. 8.2 Assessment conclusions Costs The costs represent a comparatively low proportion of BBC spending on UK public services (0.5 per cent for the nine-hour service on DTT) and so should not significantly affect the provision of other existing service activities. The application states that all costs except those in relation to distribution are common costs. This is not necessarily true, for example the marketing budget contains an amount for the barker which would mainly be used on non-DTT platforms. But after looking into the platform-specific costs we believe these barker costs are immaterial for this analysis. There is a relatively small amount of capital expenditure within the figures. This is in line with the BBC’s policy of outsourcing technology contracts to its current service providers for playout and distribution. The application rightly assesses the costs of the channel on an incremental basis. It should be noted that these costs do not represent the cost of an HD channel to a new entrant. Efficiency We agree with the application that the BBC should aim for universality and therefore attempt to offer a consistent service across platforms. While DTT spectrum capacity constraints will initially limit the BBC’s ability to provide a consistent service across all platforms, the proposals represent a cost efficient way of allowing access to BBC HD content with minimum disruption to other services. We have considered alternative distribution methods and conclude that, if possible, the most cost-efficient method would be to use existing DTT capacity to provide the nine-hour service on Freeview post digital switchover. We are not, however, minded to constrain the BBC Executive’s options at this stage by requiring that existing DTT capacity be used to support the proposed channel. We believe that there may be room within the contracted services element of the proposal to drive efficiency savings as part of the normal negotiation process should the PVT be approved. 91 BBC Annual Report and Accounts. 92 With the exception of the four-hour DTT service which uses existing DTT capacity and therefore contains a small allocation of current BBC DTT distribution costs. Value We considered the value for money of the proposals against the two different measures of value in the application: the first was the net consumer value, from which we were able to calculate the payback period of each of the scenarios; and for the second we used a consumer value measure (value yield). Before using these methods we questioned the consultants who were instructed by the Executive to devise the model for measuring value. We found the model to be robust and prudent. Both measures support the Executive’s view that both proposals offer the licence fee payer value for money. 8.3 Analysis 8.3.1 Cost of the proposals The costs represent a low proportion of BBC expenditure and should not significantly affect the provision of other existing services. Overview of the costs of the proposals The BBC Executive application set out the marginal cost to the BBC of providing the package of proposals. This is also broken down by platform, with all the costs common across platforms with the exception of distribution. The total costs of (for the nine-hour and four-hour options on DTT), the average cost per annum and how they relate to the total BBC annual expenditure is summarised below. Proposed spending on BBC HD channel, 2007-2012 Nine-hour service Four-hour option £96.9m £[50 - 70]m Total cost from 2007-2012 Average per annum cost £16.1m £[x]m % of total UK PS expenditure 0.5% [less than 0.5]% The costs represent just 0.5 per cent of the BBC’s UK public service expenditure of £3,315.7m91 (the proportion falls to [less than 0.5] per cent for the four-hour service on DTT). In this respect, the channel should not impact significantly on the provision of other existing service activities of the BBC. Nature of costs included To the extent that any benchmarking is possible between these proposals and other offerings (whether from the BBC or commercial providers), it is important to understand the nature of costs included so that inappropriate value comparisons are not made. The costs in the proposals comprise incremental costs92 that will be incurred by the BBC only if the proposals are implemented. These are summarised below. Incremental costs Content Related Costs Connectivity – These are the costs of transmitting live broadcasts around the BBC and from remote sites to the playout centre for transmission. These costs are currently significantly higher for HD than SD (e.g. 11 per cent higher for a live football match in 2007). However the costs are expected to fall as suppliers face increasing competitive pressures. Repeats – These are the incremental rights costs of providing existing BBC content on the channel. The budget has been based on the repeats costs of BBC Three with adjustments made for the specification of the HD schedule. An HD transmission on the nine-hour and the four-hour overnight service would count as two repeats. However, the Executive view is that since repeats are usually bought for 10-12 transmissions at a fixed price, overall spend would not necessarily be increased to accommodate both services and therefore the Executive does not believe that there is a specific cost of repeats associated with each service. However, we would question the validity of this assumption given that without the four-hour service the repeat could be televised on up to 12 separate days whereas if we include the four-hour service the option is reduced to six separate days (since the same programme is being shown twice on one day). on non-DTT platforms Scenario 2: on non-DTT platforms and just 4 hour DTT on non-DTT platforms and just a 9 hour DTT (no 4 hour) Scenario 1: on non-DTT platforms, 4 hour and 9 hour DTT Annual 9 hour full service costs 2013 £m £m £m £m £m Content related costs x x Repeats x x Acquisitions x x Common costs x x Playout x x Marketing x x Team x x Distribution x x x x x Total [45 - 65] [50 - 70] [80 - 100] 96.9 21.6 Average annual costs x x x 16.1 21.6 Total costs of providing a HD channel to exceed five per cent per annum and will probably include re-commissioned pieces of other BBC channel content. For example, it may include a short piece featuring aerial shots filmed for the BBC Two programme Coast which may not be included in the SD programme but are visually suited to HD and are therefore re-edited. Common Costs Playout – This is t p the channel according to the schedule; inserting trailers, channel branding, onscreen graphics and continuity announcements where necessary. The costs mainly comprise technology costs but also include network directors, and therefore cannot be truly common since the four-hour DTT service would require a network director during transmission hours. However, we do not consider these costs of material importance. Marketing – This includes the cost of publicising the channel and the h other channels (e.g. BBC Three and BBC Four). In our view it seems high at nine per cent of the total budget (£8.4m over six years) – especially when compared to the on-demand PVT application which contained a total marketing budget of just three per cent of the total investment (£4m over five years). However, part of the budget will also be used to explain the new service, which will be extremely important to realise public value in the early years as the public are introduced to HD. Team – The team budget equates to 8.2 effective to application are for managed services which include labour (such as playout and distribution). Therefore the actual BBC headcount for the channel is quite low and only allows for a share of: a scheduler, business management/support, an editorial role and a channel co-ordination role (with the EFT based on projections of likely time required). These positions would be shared with the four main BBC channels. Distribution T table below), w Total from 2007-2012 x x Average per annum (£m) x distributing the channel. In the BBC Executive's proposal the nine-hour DTT cost assumes the extra capacity is provided with no spectrum acquisition costs. Distribution costs by platform x x x num distrib BBC Four. The table shows that HD distribution is currently significantly higher than SD. The closest television service in terms of distribution cost is BBCi at £11.6m. It should be noted that HD distribution costs are likely to reduce over time as technology improves the efficiency of distribution. HD distribution costs in co x x average fr 2.4 from 2006/07 ARA 2.0 from 2006/07 ARA 2.1 from 2006/07 ARA 11.6 from 2006/07 ARA to HD. But how do these costs compare with other channels? The following table shows the distribution costs in the app Four-hour DTT service BBC Three BBC Four CBeebies BBCi (red button) RA = BBC annual r 6/07 P additional operating expenditure the BBC w application is: For the full nin £ For the four-hour service on DTT: £ expenditure. This is relativ more expensive than the HD Channel due to the number of hours of original content on those channels. In terms of costs, the closest BBC services to the HD nine-hour DTT service are CBeebies and BBC Radio Ulster/BBC Radio Foyle. The closest to the four-hour DTT proposition is the BBC Asian Network. se Comparison of HD channel costs with other BBC se Commercial return from BBC Worldwide – The BBC e would oitat relevant to this a in H less of an HD cha utput via the HD n the basis that H stand BC Executive ha BBC Worldwide cannot demand a premium for programmes sold in HD as it is the required standard for overseas markets. The BBC public services are therefore unable in by genre in the table below. It should be noted that the perce : Factors in uplift BBC Worldwid Genre Children’s Estimated at around x% - not clarified yet Drama x% Entertainment x% Studios (x%), post-production (x%), other (x%) Factual x% Cameras (x%), post-production (x%), miscellaneous (x%) Events x% ctua performance x% O ms/acquisitions External market fa Sport x% OBs incl links (x%), post-production (x%), other (x%) Source: BBC Corporate Finance The BBC is currently in the process of reprioritising it’s spending following the licence fee settlem ag aspirational budget for HD production: Indicative BBC HD production budget, 2007-2012 Year 2007/08 2008/09 2009/10 2010/11 2011/12 HD Produc In addition to the production costs, there are also costs associated with the HD infrastructure for example the recent technical fit out of the new BBC building in Gl P cautious approach requires us to assume it is likely to be significant. HD production does have a benefit to the licence fee payer, in ways such as longevity of the archive, future proofing content and enabling BBC Worldwide to resell content (as HD is the required overseas standard). However, these benefits are not direct tangible benefits that UK audiences can readily translate into on-screen value. Therefore, since the licence fee is being used to fund HD production, there is an argument for making t h wished to view BBC HD content to do so. rate the move to HD pro d additional costs for the BBC. would increase the BBC’s willingness t work rease the amount it was willing to pay ost efficient way possible? n roducers ost of the cha resent a cost effici ithin the compared with other BBC p Is this the only method of delivery? The proposal does not consider the option of distributing just on any one platform. This is consistent with the BBC’s approach to u to fee payer. This is especially so, given that the incremen n the BBC Executive’ ppl additional capa spectrum is required and secured then the timings of the proposals – coinciding with switchover – look to be beneficial in that they allow the BBC to stagger the costs of implementing a full nine-hour service on a region by region basis. H providing the HD channel on DTT. The BBC does have the ability to rationalise its other services and to use capacity that may be earmarked for future use to accommodate an HD channel if it believed that the channel would generate more public value than those existing or forthcoming services. This would release some of the costs of the removed services back into the BBC and make use of currently utilised spectrum. Looking at this without considering the reduced public value of losing other service, it would be a more efficient solution financially. If the implications be for the cost of the nine-hour proposal using that capacity? We have summarised these in the table below. Cost implications of using existing BBC DTT capacity for HD Nine-hour proposal Nine-hour service using existing Incremental common costs (including non DTT distribution) x x DTT Distribution costs: Incremental A Total from 2007-2012 (£m) x x A T four-hour overnight distribution cost which does contain a small element of apportioned costs). [x] T would need to be considered on a serv services would be an extreme course of action it is not a completely unlikely future scenario given the spectrum constraints for all broadcasters. External contracts The application states t im the BBC’s technology partners there is little room to reduce them. This assumption is valid for the estimated cost proposal. But, in reality, when these costs are negotiated the BBC should be able to drive cost savings from those contracts. 8 The proposals would offer the licence payer value for money in terms of both incremental consumer value and value yield. The application uses two measures to quantify the value for money of the HD channel: o The net consumer value – the average value per household multiplied by the projected re the investment. Incremental Consumer Value T complex model to help quantify the value of an HD channel to the tions used aing habitlied. T reasonable and prudent. been used but where el looks sole y) th d o possible ex the content itself (since it will be shown in SD anyw The BBC Ex amount of time it takes for that for both scenarios the payback period is u to Cumulative net consumer value of BBC HD channel 2007 2008 Payback Period Scenario 1 Consumer value 3.3 7.6 17.0 32.2 55.1 86.9 Costs -11.9 -13.8 -14.1 -16.7 -18.9 -21.4 Net consumer value -8.6 -6.2 2.8 15.5 36.2 65.5 Cumulative net consumer value -8.6 -14.8 -12.0 3.6 39.8 105.3 Scenario 2 C Costs x x Net consumer Cumulative net consumer value x x x x x x alue yield VT value yield illustrates the amount of consumer value generated for every pound of stent in the service. For example, the average BBC value yield quoted by the BBC 93 cutive across all genres and platforms is two; therefore for every one pound of two pounds of value to the viewing public. In both scenarios the value yield is h o Scenario 1 (nine-hours): the value yield reaches two by 2010; o Scenario 2 (four-hours): the value yield reaches two by 2009. Value yield of proposed HD channel, 2007-2015 thrto the BBC’s cost per user hour. We consider the long term risk to We have included on the graph the isolated non-DTT value yield (which remains constant in both scenarios) to illustrate how the costs of the DTT platforms in both scenarios reduces overall value due to the high distribution costs. Even with this decrease, the value of H reaching a value yield of four by 2012, twice that of the ave r overnight service reaching eight. 8.4 Counterfactual: What would happen to value for money if the proposed 14 1 10 8 6 4 0 20072008200 2010 011 2 20 m equipment necessary to view the channel. If the BBC waited for a few years and entered the market when it was more mature then the costs are likely to be significantly less. There is also the issue of capacity on DTT and the lack of certainty as to whether or when the BBC might be able to provide a channel on the platform. The wait and see approach however would not be without risks. T platform, discussed in section 10. 9. Other service considerations Summary In considering the proposals we have questioned specific aspects of some of the service proposals. In particular we have considered the following: o Does the nine-hour service, as proposed, maximise possible public value? o Should the four-hour overnight service be available on non-DTT platforms? o Could or should o Is a separate broadcast channel the most appropriate method of providing an HD service? We concluded that: o There is the potential for greater public value – particularly in terms of value for money and perceptions of quality – to be delivered through a ‘best of’ nine-hour service, with a focus on genres that benefit the most from HD programming. However, there is a trade-off as such a service could draw some viewers away from other BBC channels with their broader genre output, thereby potentially undermining their promotion of the BBC’s public purposes. o There could be value to a small proportion of non-DTT viewers in having access to the four-hour overnight schedule in addition to the full nine-hour service. However, providing this would incur additional rights costs. o In principle, the proposed HD and (ii) the service is not funded by the licence fee payer. However, with HDTV expected to become wides o Is a separate broadcast channel the most appropriateservice? 9 There is the money and perceptions of quality – to be delivered through a ‘best of’ nine-hour service, with a focus on genres that benefit the m However, such a service could draw some viewers away from o channels with their broader genre output, potentially undermining their mtion of the BBC’s public purposes. r the proposal simulcast BBC One content during the peak 19.30 to eriod wo 2 such as leisure progra alclating the financial value of the proposed service to viewers, the BBC Executive took count the additional value provided by a programme being broadcast in HD over SD. genres which benefit the most from HD, such as sport or natural history, were d a greater value uplift than those which benefited less. The genre mix therefore has act on the channel’s overall value. This is partly the reason why consumer perceptions of the four-hour overnight service are more positive than might be expected. Providing an equivalent ‘best of’ channel for the nine-hour service would therefore have the potential to deliver greater value for money than the channel as proposed. Including content that benefits more from the technical quality uplift provided by HD could also increase the quality perception of the channel. If viewing were substitutional between the equivalent SD and HD programmes then overall reach would be unaffected. However, in providing a ‘best of’ channel, with its premium content, it is possible that viewers may prefer the overall diet of programming provided by this service than other BBC channels. This analysis therefore suggests that there may be greater public value in a different service offering, namely a nine-hour ‘best of’ channel. However, without pre-judging such a proposal, the Trust might have concerns with such a proposition. These would derive mainly from the potential content mix, with the risk that certain genres with high PSB value, as current affairs, would be excluded from such th hinder the BBC’s ability to promote its public purposes through the public's varied consumption of programming, including genres with high PSB value. he BBC Executive believes it is n Td rse editorial mix, as noted above, but also to ensure clarity for audiences in terms of the ecutive notes that most landmark HD content will be adcast on BBC One during peak time, although there may be occasions whee BBC E tent may be broadcast on other BBC channels. In these instances, tht these channels’ content in place of BBC One, thereb Should the four-hour overnight service be available on non-DTT platforms? T to the four-hour overnight schedule in addition to the full nine-hour servic H With available capacity on non-DTT platforms outside of the nine-hour schedule, there is a question as to whether the service, as proposed, is maximising public value. Specifically, the BBC Executive is proposing to provide a differentiated service on DTT to non-DTT platforms in providing a four-hour overnight service for programmes that can be viewed, albeit in SD (on DTT), later that day. One stakeh ad The BBC Executive is proposing this approach on DTT as a constructive (if sub-optimal) way to overcome spectrum constraints, and we view the public value of the four-hour se full nine-hour service would be available on cable and satellite, the incremental public value of offering the four-hour overnight service on these platforms would flow mainly from its scheduling in advance of the following day’s schedule and would therefore be much more limited. Nonetheless, there is likely to be a small, but not necessarily insignificant, number of viewers on non-DTT platforms who may wish to preview programmes broadcast during the 02.00-06.00 period. This desire to access could be to watch live or, more likely, in order to record for viewing later that day, but still ahead of the programmes’ scheduled broadcast. Because of this ability to view later in the day the BBC Executive does n such an audience proposition would lack clarity and logic to non-DTT audiences. We have some sympathy with this view. We also note that providing the four-hour overnight service on cable and satellite would not be without cost. Although there would not be additional transmission and playout costs th with programme rights. The BBC Executive has advised that these could add around £[x] per annum to the proposed service, although the precise figure is still subject to negotiation. We agree that the overnight service should not be provided on cable and satellite. However, were the MIA to identify this as a significant issue, we would be open to consider this further. 9.3 Could or should the proposed HD service launch as a paid for service? In principle, the proposed HD service could be provided as a paid for rather than free-to-air service providing (i) HD does not become a significant broadcast format and (ii) the service is not funded by the licence fee payer H content and infrastructure already being funded by the licence fee, the proposed service would fail on both counts. In moving from black and white to colour television, the cost of the licence fee increased fourfold for those viewing in colour. Some stakeholders have suggested that the move from SD to HD represents a similar sh The answer to this question lies in addressing two principles. Firstly, to what extent will HD become the new broadcast standard and secondly, who is paying for the additional cost of HD? If HD is envisaged to become the next broadcast standard or something close to it, then HD should be provided universally, including free-to-air. The less likely this situation is the less will be the ‘requirement’ to meet this. If all the costs of the proposed HD service were met by the licence fee payer – along the production to broadcast chain – then arguably they should not be charged twice and should instead be entitled to view HD at nil premium. However, in drawing the analogy with the colour TV, one would need to consider the additional costs of the HD service over the BBC’s SD services and whethe ra The evidence in section 8 points to the additional cost of HD, in terms of content costs, as being two to seven percent above SD. This premium is expected to fall during the next 3-5 years. Other significant costs borne by the licence fee payer include infrastructure costs, with BBC buildings being fitted or refitted for HD. Costs not currently borne by licence fee p per annum for the full nine-hour service We note tha o just under 60 per cent of users would be willing to pay extra for the five PSB channels94, whilst the BMRB research noted that a third of respondents felt that the service should be paid for. That said, a larger proportion (just under half) felt that the development of HD should be funded by the licence fee and 78 per cent of respondents in the Human Capital deliberative research disapproved of the [PSB channels] being made available as subscription services. Regardless of consumer attitudes to paying a premium for HD, the Trust is of the vie H represents a smaller step change than black and white was to colour). Given the aspects of public value identified, provision of the HDTV channel would be an appropriate use of licence fee revenue. 9.4 Is a separate broadcast chann a A separate channel is required for broadcast purposes. There are question marks over the appropriateness of providing HD as a broadcast rather than on- demand based service. However, the potential imp c demand, suggests the broadcast route is appropriate. For tec w seamlessly between SD and HD via, for example, a dedicated button on the remote control. Combined, these factors necessitate the requirement for a separate HD channel. H mark as to whether the broadcast route is the most appropriate platform for delivering HD, particularly when considering the spectrum needs of HD over SD. Moreover, the Trust recently approved the BBC Executive’s service application for on-demand. This was predicated on an increasing migration of programme viewing to on-demand at the expense of linear broadcast television. Given the costs of broadcasting, including the actual and opportunity cost of spectrum, the is The importance of HD and whether it will be the next standard or close to it and the BBC’s role in driving HD are key considerations. We also need to consider the alternatives. Could HD, for example, be provided over the internet? Just as there is spectrum scarcity so there are bandwidth limitations in terms of what can be carried over the internet, with HD programmes being particularly bit rate heavy. Overall, the analysis would point to a broadcast route being appropriate. 10. Spectrum capacity and potential reorganisation of the DTT platform S T in order to provide the full nine-hour HD service on the DTT platform. We recognise the uncertainties abou H nine-hour channel could be launched by 2012 or shortly thereafter within the BBC’s existing spectrum capacity. We are not requiring, at this stage, that existing capacity be used to support the proposed channel, so as not to constrain the BBC Executive’s options while the practicalities remain unclear. It DTT on the current six DTT multiplexes, but that this requires reorganisation of the services on the existing multiplexes. Ofcom has released some of the analysis around a possible multiplex reorganisation, but has not as yet published any formal proposals for consultation. We regard Ofcom’s views constructively, although we are not providing a formal opinion on them in this document so as not to limit the Trust's and the BBC Executive's ability to contribute to any Ofcom consultation at a later stage. However, a multiplex reorganisation, if implemented, would have implications for the BBC’s proposed HD service on DTT. The proposed use of DVB-T2 technology, which is not expected to be available until 2009 at the earliest, means the BBC would either have to delay the implementation of HD on DTT service or require consumers to undergo two set-to ac HD set-top boxes in order to view the proposed service at this time). Given uncertainties over the route to providing the channel on DTT, we have considered whether we should delay our PVT consideration until the options are clear. Our view is that there is risk that delay could cause a considerable reduction to the public value identified in the PVA so far. Given that E w As proposed in the BBC Executive’s PVT application, the nine-hour service on DTT would not have launched until spectrum became available through DSO; the main impact of a possible multiplex reorganisation therefore concerns the four-hour overnight service. We considered two alternative launch scenarios and their impact on the public value assessment: (i) Multiplex reorganisation and introduction of DVB-T2 are implemented by 2009; (ii) Multiplex reorganisation and introduction of DVB-T2 are delayed until 2010 or later. Under scenario (i) we consider that there is relatively little public value in launching the proposed overnight service on DTT from mid 2008 (using DVB-T) and this would be outweighed by the consumer confusion caused by introducing HD need replacing relatively quickly. Under scenario (ii) we believe thethan under scenario (i) in launching the proposed four-hour overniDVB-T technology) from mid 2008 (ahead of the full nine-hour serv launch on DT 10.1 Spectrum capacity issues affecting DTT distribution of HDTV The capacity to carry digital television channels on satellite or cable is relatively unconstrained. This is not the case for DTT, for which spectrum capacity is limited. The ability to accommodate HD on DTT depends on several developments which will improve the efficiency of spectrum use. o the adoption of the MPEG-4 coding standard for HD, which should allow improved compression of the broadcast signal and o a mode change on broadcast multiplexes from 16 QAM to 64 QAM. MPEG-4 uses s an MPEG-2, in due course, i.e. by 2017, this should fall to a ratio of two to one.95 In essence this will considerably increase the ability to host HD within a given amount of spectrum capacity. The need to implement these technological developments means that consumers will need new receiving equipment to access HD on DTT, even if they already have DTT and an HD- ready TV screen. Nearly all set-top boxes and all integrated digital televisions currently are equipped to handle only channels encoded in MPEG-2. So consumers will need to upgrade their equipment in order to access HD on DTT when MPEG-4 boxes b The BBC Executive’s application states that the provision of a nine-hour schedule on DTT is contingent upon extra capacity being provided to the DTT platform (and assumes that it will not have to pay for this additional spectrum). There are several uncertainties regarding this assumption: o If extra multiplexes are needed, the allocation of spectrum is determined by Ofcom. Terrestrial television uses UHF spectrum and, as the switchover competing claims to this spectrum, known as digital dividend spectrum. Ofcom is proposing to auction the released capacity. Public service broadcasters (PSBs), including the BBC, have been lobbying for some of the digital dividend spectrum to be allocated to them outside of an auction process. o There is disagreement as to whether additional capacity is needed on DTT to support the launch of HDTV from PSBs. In its consultation on the Digital DividenReview 95 Sagentia: Advice on spectrum usage, HDTV and MPEG-4 rept their understanding at the time of their assessment. would be possible to achieve HD services on DTT would be within existing multiplex capacity, but that a reorganisation of services on the platform would be required in order for this to happen. This is relevant to the current assessment and we consider it in detail below. o There is also disagreement about whether the BBC, in the absence of any reorganisation of the DTT platform, requires additional capacity o the Trust Unit, the Executive told us that in the absence of any o digital switchover, which it regarded as insufficient to accommodate an HD channel. To summarise the implications of the above: o The BBC Executive believes it needs ex platform as a whole. The issue has been raised as to whether the BBC itself needs extra capacity at least in the long term. o If extra capacity is required, this may be available either outside of an au o Consumers will have to upgrade their receiving equipment if they want to watch HD on DTT. In order to assist us in taking account of these considerations, we commissioned Sagentia, a 96 fi their report alongside this Public Value Assessment.97 Our judgment, based on Sagentia’s projections, is that the BBC Executive's assessments of its spectrum requirements for the provision of HD are defensible but conservative. Sagentia's assessment of the likely development of the capabilities of compression technology leads them to conclude that 6-11 Mb/s would be required to provide a channel in HD by 2012, and that the BBC, with its q Based on the foregoing analysis, and not taking into account any possible reorganisation of the DTT platform, we conclude that there are good grounds to suppose that the BBC could fit the channel ht be at the risk of providing a less than optimal picture quality and would have lictions for the BBC Executive's other aspirations for new services or extensions to services. We discuss these risks below. We do not rule out that extra capacity needed, particularly to ensure provision of the nine-hour channel in the regions ng over before 2012. long term (by 2017) we would expect the BBC to hin its allocated capacity. Furthermore, the provision of HD content on DTT would vi an incentive for users to upgrade to MPEG-4 capable receiving equipment. When Advice on spectrum usage, HDTV and MPEG-4, Sagentia, June 2007 compression do not materialise at the pace envisaged, the BBC w 98 Advice on spectrum usage, HDTV and MPEG-4, Sa the penetration of such equipment reaches a tipping point, we would expect it to become possible to turn off MPEG-2 transmissions, allowing all channels to be transmitted in MPEG- 4. Assuming the life cycle of TV reception equipment to be seven to ten years, we would expect penetration of MPEG-4 to reach all households by 2020. Conversion to solely MPEG-4 transmission would result in a further spectrum dividend, with capacity for all channels to be showing a substantial amount of their output in HD quality.98 Assuming HD provision at 8Mb/s by this time, the BBC could apply statistical multiplexing across its channels, in order to provide as much HD as possible on BBC One and BBC Two. This would remove the need for a dedicated HD channel simulcasting content. However, it would be difficult to achieve if the BBC were reduced to one multiplex. In terms of our assessment of public value, w vice could be provided on DTT at no extra spectrum cost either in existing or additional acy. This could be through any one or a combination of the following: existing spectrum available to the BBC; gifted spectrum (through the DDR), w spectrum or a permanent grant; or reorganisation of the DTT platform. The Trust has a responsibility to ensure effi tkin use existing capacity to provide HD. The BBC was given sufficient spectrum allocation to fulfil its public purpose of driving digital television when Britain’s digital strategy was first mapped out by the Government. The BBC has risen to the challenge, demonstrating with the launch of BBC Three and BBC Four that it is serious about driving forward the benefits of digital television. If compression standards improve in line with our expectations, and assuming service approval, our initial view is that the BBC should aim to launch the HD channel on DTT within its own capacity at the earliest opportunity. D that a fundamental reorganisation of the DTT multiplexes could help commercial broadcasters to play their part in the digital strategy. Ofcom has set out principles at a formative stage and we would expect consultation on any formal proposal to follow. The Trust views Ofcom’s analysis sympathetically, as discussed below. Multiplex reorganisation could potentially facilitate the provision of a critical mass of HD services on DTT, to the benefit of consumers. However, we see a potential concern that such a reorganisation might constrain the BBC’s ability to fulfil its future aspirations on DTT. As a matter of principle, (and without pre-e co prospect of the BBC diverting licence fee money from content to spectrum acquisition in order to fulfil its digital strategy. 10.1.1 Risks in providing HD within existing capacity to be relocated to other multiplexes, as current set top b provision of the proposed service on DTT or launch the service at a lower level of picture quality than it would prefer. This could harm perceptions of the service or perceptions of the quality of HD in general. However, a modest reduction in picture quality may be acceptable in the short term, assuming that future improvements in compression would restore the quality standard shortly thereafter. There would also be a risk of not launching the service if the BBC Executive reserved spectrum capacity for future services. With finite spectrum capacity, future services could take priority for use of capacity if they were seen to be more important t H with HD being one of the most important developments currently facing the television industry – we believe this risk to be small. However, it is incumbent on the BBC Executive to take into account opportunity costs when considering the options for DTT ile we have proceeded on the basis that both the four-hour and nine-hour DTT services lanch at some stage, we have taken into ic p are considering the HD proposals now. 10.2 Potential reorganisation of the DTT platform In its consultation on the Digital Dividend Review, published in December 2006, Ofcom stated that one of the ways in which it would be possible to achieve HD services on DTT would be within existing multiplex capacity, but that a reorganisation of services on the platform would be required in order for this to happen. Since co broadcasters and other relevant stakeholders. Ofcom released some of this analysis publicly in July 2007, in response to calls from stakeholders, but has not published any formal proposals for consultation. Ofcom's view is that it would be possible to offer a number of HD channels on the DTT platform, within the capacity of the six existing multiplexes. The key aspects of this analysis are that: o Capacity for HD services could be provided from three different sources post DSO: • use of some capacity from mode change; • improved MPEG2 compression; • use of DVB-T2 T2 multiplex by 2012, with universal coverage if the multiplex. There would be the potential for a fifth service on that multiplex at a later stage. There would also be capacity for a further HD service on a lower coverage multiplex by 2012. receive services broadcast using DVB-T2. This would entail a reorganisation of several services on the DTT platform, but Ofcom says these could be accommodated within existing capacity. T Executive submitted its PVT application. The provisions of the Ofcom analysis are therefore germane to the PVA. Ofcom gave us a confidential briefing which went into further details of its analysis. We have considered a potential multiplex reorganisation, on the lines that Ofcom has envisaged, in terms of how it might affect our assessment of the public value of the BBC Executive's proposed service. We did not consider it necessary for the BBC Executive to resubmit their PV fo Executive’s application is for the creation of an HD channel. Issues as to distribution, as raised by the Ofcom analysis, could, if necessary, be handled outside the PVT process (should the service be approved). Secondly, Ofcom has not made formal proposals at this stage, and any formal proposals will be subject to consultation. As such there is uncertainty as to what will be agreed and when betw fi p market. Delaying the proposed service would therefore va Accordingly, it is appropriate to proceed with considering the application now. We do not consider it appropriate to seek to stagger consideration of proposals for HDTV by requiring a separate application for the non-DTT service. This is because it is important to consider the impact as a whole on public value of providing the entire HDTV service. In order to facilitate the delivery of HD service su spectrum use. These are the MPEG-4 coding standard, which determines the compression of broadcast channels, and a new transmission protocol used on the multiplex itself, DVB- T2. Ofcom predicts that the implementation of these technologies would enable four HD channels to be provided by 2012. er of these developments would require consumers to have a new set-top box. Since it an pgrade to their equipment in ordthedeployment of MPEG-4 with tha nsuers of two upgrades which facilitate the most efficie vices with only one set-top box replacement. he DVB-T2 technical standard is not yet available – it is not in production nor have ctical implications been worked through by industry – it is one of the determining t equipment capable of handling DVB-T2 could be available to consumers from late 2009, g the implementation of the plan region-by-region from digital switchover from that 1 Ofcom’s analysis of the DTT platform requires the PVA to consider alternative launch scenarios for the proposed HD service on DTT and the impact on public value. This is driven largely by the 2009 availability date for DVB-T2 equipment. The four launch scenarios are set out be th scenario whereby multiplex reorganisation is agreed with all concerned parties and can be implemented with DVB-T2 in 2009 and (ii) where the reorganisation and/or technology is delayed until late 2010 or beyond. Four-hour / overnight service Full nine-hour service Timetable Technology Timetable Technology BBC Executive proposal Launch 2008 MPEG-4 DVB-T DSO (by region) if additional spectrum granted MPEG-4 DVB-T Possible Trust modification Launch 2008 MPEG-4 DVB-T By 2012 in existing spectrum (but allow for possible earlier launch) MPEG-4 DVB-T Delay launch until 2009 Launch in 2009 With multiplex reorganisation and DVB-T2 by 2009 Continue until DSOMPEG-4 DVB-T Roll out region by MPEG-4 DVB-T2 Launch in 2008 Roll out region by region with DSO (following multiplex reorganisation) If multiplex reorganisation and/or DVB-T2 delayed (to end of 2010 or later) Continue MPEG-4 DVB-T MPEG-4 DVB-T2 reorganisation and DSO completed out depends on nature of delay to DVB-T2 10.3.1 Multiplex reorganisation agreed and DVB-T2 available by the end of 2009 Under this scenario we believe there is relatively little public value in launchingthe proposed overnight service on DTT from mid-2008 (using DVB-T). The highrisk of consumer confusion would lead us to recommend delaying the launch of the four-hour overnight service until DVB-T2 technology could be incorporatedinto the equipment needed to receive HD transmissions. Set-top boxes Launching the four-hour overnight service in mid-2008 as originally envisaged by the BBC Executive would require users to purchase MPEG-4 DVB-T HD set-top boxes. These boxes would not be compatible with any subsequent transmissions using DVB-T2, and as such would become obsolete for the purpose of receiving HDTV if all HD channels were eventually to be provided only on a DVB-T2 equipped multiplex. Under this scenario DVB-T2 would become theHD transmission standard for those regionswhere DSO has completed by 2009 (i.e. these regions would switch to DVB-T2 at thispoint), with the remaining regions switching from DVB-T to DVB-T2 as DSO completes its roll out to 2012. In regions where switchover has occurred by the end of 2009, the HDDVB-T set-top boxes would have a shelf life of one and a half years rising to a maximumthree and a half years for audiences in regions where DSO completes in 2012. There are two important questions arising from this in terms of set-top boxes: oWould manufacturers be prepared to make available the set-top boxes necessary to receive the overnight service given such a limited market? oWould consumers be prepared to pay the corresponding cost (estimated to be£200-300 with PVR)?99 From our stakeholder meetings, we know that MPEG-4 DV-T HD set-t Bop boxes are already available and, based on the evidence presented in section 6, a significant minority would value the proposed service at this cost of entry (11 per cent expressed interest in accessing the four-hour overnight service at a cost of £200). However, with the set-top boxes becoming obsolete within one and a half to three and a half years, the number of people interested in accessing the service is likely to be considerably reduced. There is also a risk of some consumers purchasing DVB-T set-top boxes without appreciating that they may become redundant relatively quickly. Furthermore, it is likely the price of these set-top boxes would remain high given the technology’s limited life span with the correspondingly limited consumer demand and supply. A further consideration concerns the backward compatibility of DVB-T2 set-top boxes. Our expectation is that DVB-T2 set-top boxes will be able to decodeboth DVB-T2 andDVB-T modulations, as well as MPEG-2 and MPEG-4 compressed services. As such, they would be fully backwards compatible. This would allow users to access both the four-hour overnight service in regions yet to switchover and the nine-hour service in regions that have switched over without the need to purchase afurther set-top box. This strengthens the case for delaying the launch of the proposed service on DTT. 99 Stakeholder interviews puabout HD and how Delaying the service on DTT or launching with DVB-T where a second set-top box upgrade would be required may, in the short term, encourage a degree of platform substitution from DTT to Freesat, where a full nine-hour service is envisaged by the end of 2008. Reducing Given the relatively small cost of providing a four-hour service on DTT, and our wider concern to offer HD on all platforms, we can see a case for the early provision of the overnight service using DVB-T. However, in such a case, con in The risk of con potential public value. On balance, under the scenario where DVB-T2 would be available by late 2009, we believe it would be better to postpone launch of the four-hour overnight service until this time. Since the practicalities of launching the channel on DTT are currently unclear, in the event of the service being approved, there should be a review of the launch options in early 2008. Reach Section 7 outlined how reach to the proposed four-hour overnight service would be limited, with it receiving a medium to low rating. Access to HD in DTT households where just the overnight service is available, is forecast to be 2.0 per cent in 2009 with reach in these households at 20.2 per cent. However, these forecasts are based on only one set-top box upgrade. With set-top boxes becoming obsolete within a short space of time re T2 set-top boxes become available. Accordingly, we would expect access to th lower, although reach and use among those able to access (through their expensive STB chse) might reasonably be expected to be higher. access would in turn reduce overall reach in all DTT households but would increase reach in Freesat households. Overall we believe the majority of DTT households that would have adopted HD in 2008 and 2009 are likely to wait, with HD take-up on DTT likely to accelerate more quickly between 2009 and 2012 as a result of the pent-up demand. Quality The timetable for launching a DTT service b service delivered a higher quality rating than the more limited four-hour service. Should a multiplex reorganisation enable the full nine-hour service to launch sooner on DTT than would otherwise be the case, then the quality assessment of the proposed service would rise. Conversely, there could be a negative impact on perceptions of quality if the BBC introduced the four-hour service in a way that would encourage consumers to buy equipment that would quickly become obsolete. Impact S Any delay in the opportunity to access the channel on DTT versus other platforms would therefore work against this principle. However, the section also noted a number of other respondents were aware of what was required to watch HD television. Launching a service that would create legacy boxes within a relatively short-term scale is likely to increase this consumer confusion, despite any accompanying communications activity, and potentially create resentment amongst those who were unaware of the impending changes in transmission technology. Section 6 and the discussion above on set-top boxes noted that a potentially significant minority of early adopter te Delaying deliver public value for this audience. Cost and value for money Any delay in launching the four-hour overnight service is unlikely to have a material impact on the overall cost and value for money of the proposed service over the five year period of this PVA. In addition, there is uncertainty surrounding the cost implications of proposed DTT reorganisation, including the introduction of DVB-T d these costs, we have not factored them into our public value considerations. However, the Trust will need to ensure value for money is maintained. It is also for this reason that we consider that, in the event of service approval, a review in early 2008 of the likelihood and timescale of DTT implementation is needed. Other While there is public value in the BBC’s proposed HD service there would be even greater p moment, of additional spectrum capacity. Given uncertainties about how much HD content other PSBs will have by 2009, we give this limited weight but nonetheless consider the provision of additional HD services to be of benefit to audiences. If Ofcom’s assertions regarding infrastructure requirements are correct, a multiplex reorganisation would also allow for the earlier availability on DTT of the full nine-hour service. Under this scenario the public value of the BBC Executive’s proposed HD service would be higher, with the nine-hour service on DTT delivering greater public value than the four-hour overnight service (see Conclusions, section 11 p into our c 10.3.2 If multiplex reorganisation is delayed (to the end of 2010 or beyond) Delay to multiplex reorganisation gives more time for a four-hour DTT service available through DVB-T boxes to deliver public value. However, there would still be a risk of consumer confusion. At present, the end of 2010 is the latest likely date for the availability of DVB-T2 set top boxes. This scenario is bei su roll out region by region alongside DSO from the end of 2010 (or later) using DVB-T2. The four-hour overnight service could launch in DVB-T from mid 2008 in regions that have yet to switch over. The timing of the move to DVB-T2 as Accordingly, the greater the p value. We would c in from mid-2008 as originally envisaged by the BBC Executive. That said, consumers would have at least two and a half years to use their DVB-T set-top box, under this scenario, before the need to upgrade. This may increase consumers’ propensity to purchase the set- top box and thereby increase access to the service. Delaying the service on DTT would also work against the principle of universality. While non-availability on DTT could be acceptable f tr Although launching the proposed four-hour service in 2008 could provide a buffer against any potential delay, we have considerable concerns about the BBC potentially encouraging licence fee payers to purchase equipment that would need replacing relatively quickly. For some, such as early adopters, this may not be an issue. Indeed, the issue for them may be the reverse as they are likely to be more accepting of two set-top box upgrades and would therefore expect the service to be available as soon as lik years. However, for the majority of licence fee payers there is a significant risk of further confusion over HDTV and the equipment necessary to view any HD service. For those that may have purchased without understanding the technology situation, the confusion could turn to resentment towards the BBC when their DVB-T set-top box (which could be perceived as an expensive purchase) no longer works. The loss of public value from delay versus the potential to create negative pub (u b However, there is less impact on public value than in the scenario where there is a sh d payers. While not fully within the BBC's control, however, an effective communications programme, particularly to make licence fee payers aware of the period within which the equipment may become obsolete, would 2 We also need to consider the risk of delay beyond 2010. If DVB-T2 was not available until 2011 or 2012 then the loss of public value would be even greater. 2012 sees London host the Olympic Games. There is likely to be strong demand for viewing such a major global sporting occasion in HD. While this has less weight than other factors, a delayed launch combined with a delay in DVB-T2 could, potentially, leave users of the DTT platform without the abilit th Other In considering all of these scenarios we need to remember that actual receipt of HD on DTT will A be important that clear signals are given to manufacturers and consumers no later than early 2008 otherwise options for DTT may be lost by default. 10.4 Recommendation U the DTT platform will not be resolved within the timescale of this PVT. In the event of service approval, therefore, the likelihood and timescale of implementation on DTT should be reviewed in early 20 u could be accommodated on DTT (including opportunity cost considerations regarding other existing or potential BBC services) and to determine the appropriateness or otherwise of launching the four-hour overnight service from mid-2008 using the DVB-T transmission protocol. Subject to the factors set out above, particularly ensuring value for money, we believe that any service approval should allow the necessary flexibility for the BBC Executive to launch the service within the parameters we have considered in this section. 11. Conclusions Summary Overall we believe the proposals would deliver a medium to high level of public value. T deliver t BBC would provide a strong stimulus in helping a free-to-view HDTV market develop in the UK. It would also coalesce the market around the MPEG-4 standard, to the benefit of all consumers. There is value in launching the proposed service in the immediate future. Impact is one of the two key drivers. In addition to p si au broadcasters and viewers a lo The nine-hour service on DTT would be expected to deliver higher public value than the four-hour service on DTT and slightly higher value than the nine-hour service on non-DTT platforms, although a good level of public value would be expected from all three. There would be minimal public value forgone from the 02.00-06.00 closure of BBC Four, BBC Parliament and three BBCi streams on DTT. This is due to their limited reach. The overnight HD service would deliver a good level of public value leading us to believe there would be a net benefit from the proposed change. The proposed service would require a change to the BBC’s multiplex licence. Any PVT approval to launch the HD service would be conditional upon the necessary consent from Ofcom. In sa fo o launch on Sky and digital cable platforms from the PVT decision and Freesat from platform launch; o review likelihood of implementation and timescale of DTT reorganisation in early 2008. Through this determine the appropriateness or otherwise of launching a four- hour overnight service on DTT from mid-2008. This should be subject to Trust approval; o deliver an equivalent nine appro o consider simulcasting other BBC channels and content between 19.30-22.00 and not ju Parliament; o review the service in 2012 to coincide with DSO. 1 In the previous sections of this document we provided a detailed analysis of how the proposed service rated against each of the separate drivers of public value. In this section: o We pull together our key findings and assessments across the pu and conclude whether we believe the proposed service provides public value. This includes an assessment of the public value forgone. o We also note any areas where we believe conditions should be attache 11.2 Analysis and conclusions In the tables that follow we have summarised the findings for the proposed service in relation to the nine-hour and four-hour options. (The detailed analysis behind these summaries can be found within sections 4–8.) After the tables, we draw together these findings an The nine-hour service on the cable and satellite platforms would deliver public value straight away, as there are no constraints to delivery on these platforms. The service would also help maintain BBC reach on these platforms. The nine-hour h avnificant impact in relation to the current service propositions on this platform (which has fewer channels than cable and satellite, and no HD offering as yet). While the four-hour overnight service on Freeview would have lower public value, we still recommend its adoption on the grounds of value-for-money and its impact on the universality principle. ptions of qg in genreuse and wwhere acc. valued by lices the proular the stirvices, whicose to the mme so ne high reasonableach inlower o D. perceys beinnt of ent tent be eduarticr seurpogrant. ighesligh over Simpactst alwa poistate wouformnd inPaide the SD urs drive a reasonabl) co) anlts in ued) ely t noat tf th These prpose ar DTTpromonatin gnised (a availab abo cone limchan procontof the dig(see n HD is re conten expressD. essing He note s). han othHD qua other Homotion air markcribers’ servicesy substit (contentsence on above ributionelivered compara chnical quality ge and nature h some concelly benefit fromly means of aing (although paid for platfoader genre mividing access ters. Availability s impact. ing driven by d to the free-trol of their suas the free accewing is primaimpact on reactive schedulost due to 012 ensurestively low dpublic value impact tha Comment .. Te .. Ranalthougmateria .. Onadvertisthrough ..Bro .. Profee payservice’ .. Ratprovidein contextent .. Vieoverall AttLowreach by 2A rof actual GoLowre. H e M on cable and satessment L ity ctiveness umer t n impact ice erv llit 11.2.2 Nine-hour service on DTT Assessment L M H Comment D Consumer Im .. As for cable/satellite. .. As for cable/satellite, but higher overall rating as this would be the only source of HD content on the DTT plat form. .. As for cable and satellite, but higher overall rating as this would be the only source of HD content on the platform. .. Limited ability to promote the public purposes, except for the dig C itizen impact .. Digital purpose promoted through the proposed service providing a major stimulus to the free-to-air HD market, potentially encouraging other broadcasters to enter, educatin compression and minimising scope for HD digital divide between free and subscription platforms. .. As for cable/satellite. Quality .. Higher distribution costs associated with the DTT platform for nine-hour service would lower its VFM (compared to satellite/cable) .. Delivers the highest public value of the 3 service propositions. .. Good ratings across the measures; impact is part 11.2.3 Four-hour service on DTT Assessment L M H Comment Quality D .. Limited content and d .. Limited content lowers the dist Impact C onsumer impactCitizen impact .. .. Only source of HD content underpins the rating. .. As for nine-hour service on DTT, but the lower rating reflects the lower demand for the service (compared to the nine-hour proposition), lessening its ability to deliver the citizen benefits. .. Unsociable broadcast time will result in low ‘live’ viewing. .. Most viewing necessita M Overall public value .. Only source of HD content on the platform ensures the rating remains above medium. Limited content lowers the rati .. Limited public value across RQ .. High VFM underpinning overall rating. 11.2.4 Overall conclusions Summary There is increasing consumer expectation and demand for HD services. HD is emerging as a broadcast standard. The proposed service will significantly promote the BBC’s public purpose of ‘helping to deliver to the public the benefit of emerging communications and services’. Entry by the BBC would provide a strong stimulus in helping a free-to-view HDTV market develop in the UK. It would also send a strong signal in terms of MPEG-4 and the need for the market – from broadcasters to hardware manufacturers – to start adopting the format. Stakeholders and licence fee payers alike expect the BBC to take an evaluated risk and adopt a market-building position. Looking across the BBC’s drivers of public value, there is value in launching the proposed service as soon as possible. Impact is one of the key drivers. Not only would the service promote the digital purpose, research revealed that a significant minority would value the proposed service. Providing the channel for this audience now would stimulate the market, increasing access and viability for other broadcasters and viewers alike. Value for money is also important. The proposed service is relatively low cost and as such would create real value for viewers. Conversely, there is minimal public value from reach in the short term. Access limitations, combined with HD being a substitute for SD viewing, limit its value now. But, in the longer term, as access costs fall and audience expectations potentially change, reach is likely to deliver greater public value. Finally, the proposition itself is not vital to the immediate future health of the DTT platform. However, as the proposed service would create public value it should, if approved, be universally available. Public value and platform considerations The findings suggest the nine-hour service on DTT is likely to deliver higher public value than the four-hour service on DTT and slightly higher value than the nine-hour service on non-DTT platforms. However, all three would be expected to deliver a good level of public value. Given capacity constraints on DTT and the uncertainty around the ability to implement the channel on the platform, arising from a potential multiplex reorganisation and the standardisation process for DVB-T2, the question of DTT provision is different from that for cable and satellite. In the event of service approval, it makes sense to expect provision on cable and satellite straight away. Provision on DTT should also be expected as soon as possible, but not until some of the uncertainties regarding the platform have been resolved. This is particularly important given both the cost and opportunity cost of providing this or any other service on the platform. We are conscious that any pre-empting of DTT capacity for HD could 122 si factor which should be consider Public valu In providing the four-hour overnight service on DTT we considered the public value forgone by the removal of BBC Four, BBC Parliament and three interactive streams on BBCi. We determined this loss would be minimal for three main reasons: Firstly, some of the affected services are not fully utilised at this time. BBC Four closes down at 4am, while the two non-news interactive streams are not always in use at this time of day, often being linked to linear programmes. S most of the content on the non-news loops is generally available to access at other times. T linear channels with the same again for the BBCi streams. The low reach, combined with the content being available at other times would result in minimal impact on the services’ quality and distinctiveness. Providing reduced opportunities to view would, however, have a detrimental effect on licence fee payers an be mitigated if viewers watched the content at other times. Even if not the case, the loss would remain small given the number of viewers affected by the proposed change. Cost per user hour would also increase if there was an overall loss of viewers, but again this would be minimal given the number of viewers affected. T Accordingly, we believe there would be a net benefit from the proposed change in service. In taking this view, we emphasise our continuing commitment to the services that would make way for HD. W to be reinstated once the full nine-hour service was Multiplex Licence The DTT multiplex on which the BBC transmits the channels that would be temporarily displac w broadcasting in MPEG-4 would require a change to the technical code to which multiplex licences are subject. Any Trust approval of the proposed HD service would be subject to Ofcom consent to vary the multiplex licence. 11.3 Service conditions T consider that the BBC parameters to safeguard or enhance the public value in these proposals. These suggested conditions deal only with steps that the Trust considers should be taken to preserve or increase public value. It is not part of the Trust’s function in prod to We summarise below those areas which we recommend the Trust should consider: Issue Recommended action R (sections 4 and 10) the service, if approved, should launch on Sky and digital cable platforms once a service licence becomes effective and on Freesat from platform launch. The service should also launch on DTT as soon as possible. However, given the degree of uncertainty concerning the development of DVB-T2 and the reorganisation of the DTT platform, the likelihood of implementation and timescale should be reviewed in early 2008. This should be undertaken in the event of service approval both to confirm the appropriate wa (including opportunity cost considerations) and to determine the appropriateness or otherwise of launching the proposed four-hour overnight service from mid-2008 using the DVB-T transmission protocol. Assuming service approval, the PVT conclusions and service licence should allow the necessary flexibility for the BBC Executive to launch the service within parameters we have identified in section 10. Lesser service proposition While the four-hour overnight service on DTT is a on DTT (section 7) constructive response to capacity constraints, it is a second- best option for the platform that makes the biggest contribution to the BBC’s reach. At the earliest opportunity, the service proposition on DTT must be made the equivalent to that on cable and satellite. Spectrum capacity on the We expect compression standards to improve as technology DTT platform develops. The BBC Executive should aim to deliver the service within its existing DTT spectrum capacity to the (sections 4 and 10) BBC Parliament (s need to amend the requirement thhours a day. It must also Parliament to broadcast continuous live coverage of the House of Commons, including occasions where it sits beyond 02.00. Where the House of Lords sits beyond 02.00 proceedings should be broadcast live unless coverage can be reasonably deemed as non-essential. The service should be formally reviewed in 2012 to coincide with the completion of DSO and greater certainty regarding DTT spectrum. extent that compression developments allow or through capacity made available through a multiplex reorganisation. Simulcasting of BBC One (19.30-22.00) (section 9) The Executive should consider broadcasting HD content from other BBC channels during this time when, by the nature of the content, it is more appropriate to do so.