Most European countries are planning to replace existing analog terrestrial TV systems with digital services. Some programming, such as Wimbledon tennis in the UK has actually attracted a respectable audience. Conversion to digital will spawn a huge increase in the number of TV channels to be broadcast to all households. Most will be supported by advertising.
“Broadcasters urgently need to know if this will increase the total size of the market, or if advertisers will just stretch the same budgets across more channels,” says G2 analyst Adam Daum. “Unless the overall market grows, digital TV will hurt today’s leading commercial broadcasters, as they will lose business to the new channels. To hit back, they will have to bid for new channel licenses themselves, or invest heavily in programming. Either way, they will face higher production costs, just to hold onto the same revenues.”
The main benefit, according to Daum, will be lower transmission costs. But these savings will only be realized once the analog signal is switched off, probably 10 to 20 years from now. The effect of digital television on the advertising market depends on a number of factors, according to the report, including whether the average time spent viewing advertising-supported channels increases and whether the new channels succeed in building audiences with demographic or lifestyle profiles that will interest advertisers.
The main reason for the lack of advertising in the UK, Daum says, is that adding many more channels causes only small shifts in viewing patterns, as most new channels offer themed programming for minority tastes. For example, almost 40% of homes in the U.K. now have digital multi-channel TV. Yet, after more than a decade of satellite TV, the five analog terrestrial channels still share more than 80% of all U.K. viewing time.