As easy as falling off an analogue

Freeview might not be extra-terrestrial but its take-up is stellar and it is powering the progress of digital television, writes Clayton Hirst. For now, though, there are still many channels to cross

Matthew Seaman doesn't have Freeview on the television in his living room. Neither does he have it in his dining room or his kitchen. The general manager of the digital terrestrial service has relegated Freeview to the TV in his bedroom.

But Mr Seaman admits he isn't a "typical" Freeview customer. Already a BSkyB satellite and Telewest cable subscriber, he says: "I have more remote controls than I know what to do with."

Freeview is not designed to attract TV junkies like Mr Seaman. The company, born out of the ashes of ITVDigital and owned by the BBC, BSkyB and transmission company Crown Castle, is aimed squarely at the 50 per cent of households that believe they can live happily with just five terrestrial channels.

"This is a new market for people who have never had multi-channel television before. It is not like people are moving from cable or satellite to Freeview," says Mr Seaman, who has previously worked for NTL, ITVDigital and BSkyB.

Since its launch on 30 October 2002, Freeview has been a huge success. The service has attracted more than 100,000 new customers every month and, although the official figures are not published for a few weeks, Freeview is now thought to be close to the one million mark for new viewers. On top of this, it has managed to hold on to its inheritance of 800,000 former ITV Digital customers, who can watch the new service from their old set-top boxes.

With the price of the cheapest Freeview adapter (currently around £60) falling almost every month as more manufacturers enter the market, the company looks set to become a runaway success.

"[After the collapse of ITV Digital] we have regained the confidence of manufacturers, retailers, the trade and customers. This is more successful than anyone thought," claims Mr Seaman.

But when Freeview emerges from its second Christmas - a period in which it is expected to land a record number of new customers - it will start to face some tough decisions.

Freeview is a not-for-profit company. The BBC invested in it partly to promote its brand but more importantly because the corporation is required under its charter to promote the switch from analogue radio and TV to digital. Freeview's early success in appealing to those people who were not prepared to pay a monthly subscription for digital TV means the BBC is fulfilling its requirement. And despite the current discord between the Beeb and Downing Street, ministers are delighted with the take-up of Freeview, which is beginning to make the Government's aim of switching off the analogue signal between 2006 and 2010 look plausible.

However, the Government has also stated that at least 95 per cent of the population must have digital receivers before analogue is turned off. And here Freeview has its limits since it covers only 75 per cent of the British population. Some areas, such as pockets of the south coast of England, are unlikely ever to receive Freeview because of interference from other broadcasters (in this case, from French television).

"There are things we can do to improve the signal," says Mr Seaman, "but it gets to a point where it becomes prohibitively expensive to add extra customers. There is work going on to expand the signal, but this will add just a few extra per cent."

There is also evidence that Freeview isn't getting much screen time in British households. The service offers 23 new TV channels and 19 radio stations. But research by Barb, which measures TV audiences, shows Freeview's customers spend just 15 per cent of their viewing time watching the new channels, which include Sky News, ITV2 and BBC Four.

Mr Seaman says: "I don't think this is a problem. Remember, these people have had four or five channels all of their lives. It is unrealistic to expect them to change their viewing habits immediately. Look at the internet. When people first surfed the net, they looked at two or three sites. Once they had gained confidence, they started to explore - and they were off."

The apparent lack of interest in the channels hasn't dampened the enthusiasm of Freeview's shareholders, which plan to launch two new channels this year and another in 2004. The first will be provided by CBM Media, which will broadcast a mix of "secondary" sports and fi- nancial news under a deal with Bloomberg.

In May Tony Ball, chief executive of BSkyB, let slip that he was planning a new mass-market entertainment channel on Freeview. BSkyB already operates three channels on the platform, and it is understood the new venture will replace an existing one, thought to be SkyTravel.

This raises further questions because analysts still haven't quite fathomed exactly why BSkyB invested in Freeview. The two theories are that:

a) it is a defensive move - if it invests in Freeview then BSkyB can prevent it being a direct competitor;

b) BSkyB believes that once people have developed a taste for multi-channel TV on Freeview then they may sign up for its own more comprehensive service.

"In terms of revenues, Freeview is a complete non-starter," says Hellen Omwando, an analyst at research group Forrester. "Running platforms is very expensive, so Freeview may one day need to look for revenues." This pressure could come from BSkyB.

Mr Seaman responds: "I am constantly being asked for stories about Freeview boardroom bust-ups, but the interests of the shareholders are aligned."

However, Trevor Brignall, a business development director at Cap Gemini Ernst & Young, says: "The big issue for Freeview is what happens at the BBC's charter renewal in 2006. This may change the way Freeview is funded. After the renewal, it may not be paid for from the licence fee."

If this is the case, Freeview may have to make its customers pay for certain channels. Mr Seaman says: "I don't see any pressure from BSkyB to launch a pay-TV model. The Freeview proposition has worked perfectly well so far because it is very simple. But never say never. Who knows what will happen when the analogue signal is switched off?"

That could be three years away, but more realistically seven. So Freeview has a clear run at convincing the 50 per cent of households with just five TV channels that they need many more.

Don't use the 'a' word: the BBC calls them trailers

By Jason Nissé and Kaveri Niththyananthan

You could hardly miss it. Almost every time you turned on BBC1 or BBC2, you saw TV journalist John Simpson, actor Terence Stamp, comedian Richard Blackwood or June Brown (Dot Cotton from EastEnders) tearing their faces off to tell you about Freeview.

But they weren't advertising Freeview. Not according to the BBC. These were trailers (not adverts; adverts run on the commercial channels) promoting the BBC's new digital output. That they told you Freeview was a new service that had just become available was, somehow, coincidental.

The BBC has a long tradition of heavily cross-promoting its products. All the Beeb's new digital channels - BBC Three and BBC Four on TV, 6 Music and BBC7 on radio - as well as the online service, BBCi, have benefited strongly from this cross- promotion on more popular channels in the past year. It is even more noticeable as the BBC doesn't carry any adverts - sorry, trailers - for anyone else.

The corporation has been caught out cross-promoting its products in the past. Some years ago, magazine publishers complained about the way that the BBC would launch, say, a gardening or cookery publication linked to one of its shows. As soon as the programme ended, an advert - sorry, trailer - would pop up telling viewers they could buy the magazine for £2.95 at all good retailers.

The Monopolies and Mergers Commission - the forerunner of today's Competition Commission - agreed and, following a report in 1992, the BBC was told to inform viewers about other services and disclose how much time was given over to these promotions.

The former the BBC does grudgingly, with a line saying "other magazines are available" in small writing at the bottom of the screen. The latter is a line in the annual report, published last week, which revealed that the total promotion of BBC commercial products totalled four hours 38 minutes in 2002-03, of which three hours 10 minutes and 30 seconds was devoted to BBC Magazines.

Using average achieved advertising rates for the ITV franchises, The Independent on Sunday has calculated that to buy this airtime on commercial TV, the BBC would have had to pay £25.9m. And of this, £17.7m would had to have come from BBC Magazines.

The corporation's annual report does not separate out how much was spent on promoting its digital channels. However, a strong clue comes from the "Marketing, press, publicity and events" line in the accounts. This expenditure went up from £48.3m to £63.5m, and a note in the accounts points out: "There has been additional marketing spend in the year to support the launch of BBC Three and the digital radio networks, and to promote digital television, including Freeview."

The BBC also admits that it spent £25.5m on "on-air trails and navigation". This covers the cost of making these trailers (pulling faces off is expensive), though there is no charge for the airtime provided free by BBC1 and BBC2.

The BBC was reluctant to tell The Independent on Sunday how much time was given free to these adverts - sorry, trailers - for Freeview.

The Beeb would not even say how much time was given to promoting digital services as a whole. But it gave digital a good boost at a time when it was most needed.