Media: Channel 5's chief dishes up the other half of the Sky debate

Two weeks ago, Mathew Horsman chided me in these pages for lack of chivalry in mocking Polly Toynbee's views on digital television. I am sorry if my attempts at humour (previously suffered in silence by Michael Grade, the European Commission, the BBC, the ITC, the OFT, etc) gave offence.

But I was equally offended by his unworthy suggestion that my critique of Polly, and "defence" of BSkyB, stemmed from Channel 5's "close ties" with Sky. There are no such ties. Any deals struck between Sky and Channel 5, if they happen, will be stand-alone agreements. My opinions are not for sale.

Polly's fear is that BSkyB, by launching a digital satellite television service before a terrestrial system is ready to compete, will create a monopoly which it will then abuse.

But look at analogue satellite. Four years ago, BSkyB had the only encryption technology and subscriber management system; this was not surprising - it had invented them. Its services also had the great majority of the satellite/cable audience.

Today, there are 40 satellite channels, of which Sky owns 11. Its share of viewing in satellite/cable homes is below 50 per cent. Many competitors have joined the market, able to use Sky's smart card, subscriber management, airtime sales, spare transponder capacity, marketing efforts, joint venture budget - or, like Ted Turner's CNN, by-pass Sky altogether.

In digital, Sky has already signed an agreement that it would allow fair and reasonable access to technology it developed. The draft UK digital regulations published last week will give reality to that undertaking. Yet Polly Toynbee continues to offer the odd notion that Sky "could put BBC1 on channel 219".

Let it be said again - in digital, there is no channel 219 to which viewers must laboriously click. The menu system means that all channels (or, more accurately, services occupying bit space) are within two or three "clicks" from switch-on. Indeed, given that electronic programme guides will offer a "favourite channel" menu, viewers could put all the BBC's (and none of Sky's) services on this menu and be within two "clicks" of any.

Polly Toynbee continues to run the "common interface" argument - essentially, that no decoder box should be permitted that does not incorporate multiple technologies, however uneconomic for the manufacturer, risky for the broadcaster and expensive for the consumer that might be.

The 1970s video-recorder war between VHS and Betamax may have left some consumers with a progressively less useful piece of hardware. But imagine the cost impact if, from the start, all videos had been forced to incorporate both technologies.

BSkyB may - or may not - ask manufacturers to incorporate a digital terrestrial plug-in slot in digital satellite boxes. It certainly cannot prevent manufacturers from offering one. If it chose to subsidise a non-compatible satellite- only box, it would run the risk of being outflanked by more flexible technology.

But the worst outcome for the UK would be if Sky concludes that the digital regulatory regime is too anti-commercial, and opts to expand its analogue business rather than launch digital.

The danger here is that barriers to entry for other would-be digital broadcasters would rise if BSkyB really pushed analogue hard. A pounds 50 analogue dish/decoder, offering 40 to 50 channels, would be formidable opposition for digital terrestrial television, offering less choice and much more expensive hardware. It is easy to forget that BSkyB could offer football and movie pay-per-view now, and cream the top off that revenue stream, stymying digital.

The loss to viewers, manufacturers, broadcasters, retailers and employees if the UK fails to go digital would be substantial.

Most people assume that Sky is bound to launch a digital service. It is too committed, surely. There is too much money to be made. I would simply say this - anyone who imagines Sky has no Plan B has never dealt with them.

Last month saw a new twist in Polly Toynbee's campaign against Murdoch - support for compulsory 51 per cent EC content quotas for all UK-licensed TV channels. Quotas offer no industrial, cultural or consumer benefits. They would cost jobs, reduce viewer choice and undermine competitiveness. They would, contrary to Polly's assumptions, have no negative effect on Sky. Sky's entertainment channels already offer more than 40 per cent EC content. Channel 4 last year only managed 50 per cent. If all countries adopted domestic content quotas - the logical conclusion of her argument - it would be deeply damaging to the UK, which is second only to the US as an exporter of films and television programmes.

Polly protests that second-hand US television programmes cost 10 per cent of the price of new European-originated material. The same is true of British programmes in export markets. Her call for video-on-demand to be subject to quotas when provided through television (but not video shops, telephone-line distribution, cinemas, CD-Roms or PCs) is inconsistent.

The Independent won a reputation with its launch slogan; letting anti- Murdoch prejudice distort its commentary risks it.

David Elstein is chief executive of Channel 5 Broadcasting and formerly head of programmes at BSkyB. Mathew Horsman returns next week

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