Outlook: Battle is joined in digital television

THE GLOVES are off. After months of shadow boxing, battle proper for Britain's digital TV future has commenced. Perhaps predictably, it was Rupert Murdoch's BSkyB that struck the first blow, and though there is a fair degree of marketing hype in its initiative, it was none the less quite a punch. Other similarly timed announcements from the two main rival digital platforms, ONdigital and Cable & Wireless Communications, were left looking limp by comparison.

ONdigital is getting in before Sky by offering free set top boxes too, but only to those who buy a new TV. Cable already offers a free box, but the digital release doesn't begin until June and won't be fully national until March next year.

As it happens, cable is Sky's main target here, not ONdigital, but Carlton and Granada's terrestrial platform is badly caught in the cross fire. There is no option but to match Sky's costly promotions blow for blow. Neither of its shareholders are short of a bob or two; whether or not this is predatory pricing by Sky, Carlton and Granada are big boys, both used to and presumably prepared for the rough and tumble of a long business fight. They both have direct experience of Mr Murdoch and know he doesn't take prisoners.

But as the stock market correctly surmised by marking Carlton's shares down so heavily, the fledgling ONdigital is going to find the cost of a prolonged price war more difficult to absorb than Sky, with its existing substantial subscriber base.

Sky is a focused pay TV business with an existing and considerable vested interest in migrating its analogue subscriber base to digital. Carlton and Granada are new to the business, and both have other calls on their time and money. Sky's initiative has to mean the cost of the ONdigital experiment will escalate quite substantially; at this stage we can only guess at by how much.

None of this necessarily means we are faced with a replay of the head to head battle between Sky and British Satellite Broadcasting in the 1980s, which ended with Sky absorbing BSB. ONdigital is still a different enough pay TV offering, in terms of access if not product, for it to be able to coexist with Sky. Even so, breakeven and payback are plainly delayed, possibly by some years.

The bigger threat to Sky was always going to be cable, which after years of shambolic management and marketing, looks finally like getting its act together. Able to offer both TV and broadband telecommunications, its digital offering ought to be superior to Sky's - more, faster and better in interactive functions. Furthermore, to the extent that Sky continues to add conventional subscribers, they tend to come almost wholly through cable. Long term, this cannot be good for Sky, whose present pay TV monopoly depends on a stranglehold on both product and distribution.

So Sky's move looks as much defensive as aggressive. Its digital satellite platform needs to find some way of heading off the threat from cable. Price wars are usually quite damaging to shareholder value, but they are plainly good news for consumers, especially when conducted among three players all determined to stay the course. This is how competition is meant to work. Maybe we should be thanking Mr Murdoch for finally giving us a taste of it in pay TV.

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