House of Commons - Culture, Media and Sport

Select Committee on Culture, Media and Sport Fourth Report

II. CHANGING TECHNOLOGIES

9. The debate on the matters we are considering is increasingly marked by reference to the concept of convergence. The phrase can be understood in many different ways.[5] Perhaps the most straightforward definition is that employed by the recent European Commission Green Paper on Convergence:

"the ability of different network platforms to carry essentially similar kinds of services".[6]

This definition is about technology and delivery platforms. The implications of this technological change for the economy and society as a whole are potentially great, but this definition makes no assumptions about the actual economic or social impact.[7]

10. Convergence is made possible by digital technology, which in the audio-visual context involves the representation of pictures and sound as a string of ones and zeros as opposed to a continuously variable analogue signal, thus allowing a signal to be composed of a series of on and off pulses. Digital technology enables delivery over different networks; it facilitates the combination of sound and vision with computer-generated text; it facilitates display on different devices; it facilitates storage and selective retrieval on electronic media; it facilitates computer manipulation for encryption or re-editing. Above all, it facilitates compression.[8] Compression is the reduction of the bit-rate required for the transmission of a particular digital signal. There is a common European standard for compression and transmission of video material. A video picture which previously needed to be encoded at 140 Mbits/s can now be compressed to 2 Mbits/s. This continuing technological advance greatly reduces the cost of transmission and facilitates the trend towards an element of interchangeability of transmission networks.[9]

11. Digital technology and its consequences increase the areas of commonality between three industries whose development has been broadly distinct—broadcasting, telecommunications and computing:[10]

broadcasting has been a form of communication from one to many; there has been great public sector involvement in its content; in the United Kingdom, the number of providers has expanded from an initial public monopoly, but regulatory concern for the characteristics of content remains very considerable;

telecommunications has been a form of communication from one to one; public sector involvement in its content has been very limited; provision has moved from a public monopoly towards a competitive market with many providers, a transition which has itself involved considerable regulatory action;

computing, unlike broadcasting and telecommunications, has developed from the beginning in a competitive market-place; regulatory action has largely been guided by competition law, not least because computing is far less national in character than broadcasting and telecommunications; the computer has been the basis for the development of new networks, one factor leading to far greater interaction between computing, telecommunications and broadcasting.

Digital television

(i) Introduction

12. Digital television is the main response of the broadcasting industry to the challenge of convergence. The repetitive patterns in a digital signal enable it to be compressed and transmitted in a very much narrower range of frequencies, in other words, employing less bandwidth.[11] Digital television can offer at least five advantages: improved reception; improved picture quality; improved sound quality; a significant increase in the number of channels which can be transmitted over the same bandwidth; and enhanced potential for interaction between broadcast and other media. Of these advantages, the last two are the most important with respect to the impact on the citizen.[12]

13. The legislative foundations for digital television in the United Kingdom were laid in the Broadcasting Act 1996.[13] This country has been in advance of others in Europe in providing such a framework.[14] Nevertheless, digital services themselves, which are already available in the USA and much of Europe, have not yet been launched in this country, despite earlier expectations.[15] There are several reasons for this. First, the launch involves considerable commercial risk and significant levels of investment are required by the broadcaster. Second, although broadly reliant on existing transmission systems, digital television depends upon investment in new equipment in the home for the final stage of the process, reconversion of the digital signal to analogue form. Finally, digital television is not a unified phenomenon. It is being developed for three transmission systems—terrestrial, satellite and cable.

(ii) Digital terrestrial television

14. The United Kingdom will be the first country in the world to launch digital terrestrial television on to the mass consumer market.[16] Transmission of digital terrestrial television will be based on the existing terrestrial transmission infrastructure. It will not be a universal service; the initial coverage of the country will be patchy, with the service unlikely to be available in particularly hilly areas and coastal regions in England near to France and Belgium.[17] In most cases, digital terrestrial television should work with existing home aerials, although the Confederation of Aerial Industries warned that it would require "a complete rethink in many areas on the aerial requirements".[18] There will be less leeway for a poor quality reception with digital television; where reception is inadequate, the picture will freeze.[19] Overall, advocates of digital terrestrial television believed that its foremost advantage would be simplicity: the consumer would purchase a "set-top box" at a cost of £199, plug it into the current aerial socket, and be ready to watch.[20]

15. Digital terrestrial television will offer the viewer about thirty channels.[21] Around half of these will be offered on a subscription basis by British Digital Broadcasting (BDB), a joint venture between Carlton Communications and Granada Group. BDB is not only a channel provider, but the main platform distributor and promoter; it will subsidise set-top boxes to ensure the retail price of £199.[22] Its basic package will offer twelve channels, including new ones from Carlton and Granada; in addition, there will be up to three premium channels from British Sky Broadcasting (BSkyB).[23] Certain subscription packages are not an essential prerequisite with digital terrestrial television; there will be a wide range of other channels, some of them free-to-air—though only available through the purchase of a set-top box.[24] The BBC will offer its existing channels and several new ones.[25] Channel 4 will broadcast its existing channel and a second channel.[26] ITV will make available its current channel, as well as a second channel.[27] After early scepticism about the value of this means of transmission, Channel 5 has decided to make its service available on digital terrestrial television.[28] Other initial services will include a second channel operated by S4C both to enhance Welsh language provision and Welsh access to existing Channel 4 programming and a channel operated by the Turner Broadcasting System.[29]

16. Those involved expressed confidence in the success of digital terrestrial television. The BBC saw it as "the natural pathway of choice to digital for 'middle England'".[30] BDB was confident of offering a competitive subscription package to the nearly three-quarters of consumers who had so far chosen not to invest in satellite or cable. It would offer "the proven driver channels" of sport and movies, combined with "manageable choice".[31]

(iii) Digital satellite television

17. Digital satellite television, in contrast to its terrestrial counterpart, is operating now in several other European countries. A total of over 200 digital channels are currently available in France, Germany, Spain, Italy, the low countries and the Nordic region. The launch in these countries has not been uniformly successful; we were told of commercial and regulatory difficulties in, for example, Germany and Spain. However, in France, which has seen the most successful launch, there are over one million digital satellite subscribers.[32] More than 40 digital free-to-air services, received following purchase of a set-top box, are already available across Europe.[33]

18. Digital satellite television offers several advantages. The infrastructure for digital satellite television is made available through independent operators so that it is an open system. The coverage will be greater than that of digital terrestrial television: it will be possible to receive services from almost anywhere in the United Kingdom.[34] Many of the free-to-air services provided by digital terrestrial television should be available by satellite.[35]

19. The promotion of digital satellite television in the United Kingdom will be led by BSkyB. It will develop a service on the basis of its existing subscription and access systems. It is providing for the manufacture, marketing and sale of a new digital set-top box. It will offer many additional channels; some will be specialised channels; others will create a "Near Video on Demand" service for movies, much superior to BSkyB's present limited on-demand service.[36]

(iv) Digital cable television

20. Digital television will also soon become available in the United Kingdom through the existing cable infrastructure. Digital cable television is already operating in the USA and offering a wide range of services. Even within the geographical limits of the cable franchises, the timing of the availability of digital television by cable in the United Kingdom will depend upon the cable company, although at least two major companies—Cable & Wireless Communications and General Cable—expected to launch in 1998.[37] The necessary digital set-top box is likely to be available on the basis of a commercial rental from the cable company.[38] Digital cable television will be able to deliver up to about 200 television channels as well as interactive services.[39]

(v) Destination or staging post?

21. By the end of 1998, the United Kingdom is likely to have three new television services which are not currently available. Those who have invested considerably in the three systems were, as might be expected, optimistic about their prospects. Mr Mathew Horsman, an analyst of the market, was more cautious, raising the issue of whether there was sufficient appetite for multi-channel television to underpin the rapid growth of the three systems.[40] Mr David Elstein, Chief Executive of Channel 5, was more concerned about the potential confusion to the consumer arising from the variety of systems available.[41] The operators of the ASTRA satellite believed that development of the three systems would be complementary, arguing that each had its own strengths.[42]

22. The Government "does not favour any single transmission medium for delivering digital services".[43] Nevertheless, Mr Chris Smith, the Secretary of State for Culture, Media and Sport, told us that his own view was that "the market for one hundred plus digital satellite channels is probably of a relatively limited size" while the market for digital terrestrial was "probably rather larger". He claimed, though not necessarily convincingly, that the former offered a gain "in quantity rather than necessarily in quality", while the latter offered a gain in both quantity and quality. He considered that those who were investing in digital terrestrial television were making "a sound judgement".[44] Of course, as some witnesses observed, the Government has a direct interest in the success of digital terrestrial television, since its rapid development is seen as the main pathway to "analogue switch-off", which should eventually enable a more efficient use of the spectrum with consequent economic gains.[45]

23. During our visit to the USA, it was put to us forcefully and frequently by acknowledged and experienced experts that digital television per se was neither as revolutionary nor as convergent as its advocates imply. Indeed, it was put to us repeatedly that Britain was going down a blind alley by being so narrowly preoccupied with digital television. In some measure, this scepticism may arise from the development of digital terrestrial television in the USA, which appears in some ways to have been less well planned than that in the United Kingdom. Equally, insofar as digital television appears revolutionary in the British context, that may reflect the historically conservative approach of British broadcasting towards technological innovation and its implications.[46]

24. The conversion of the television signal from analogue to digital is a necessary prerequisite for television's participation in the market opportunities created by convergence. Digital television will represent an important change in the nature of the British broadcasting market, ending forever the distinction between terrestrial television as necessarily free-to-air and satellite television as necessarily pay-TV. Although regulatory decisions will affect their prospects, the consumer will determine the success of the different systems and of digital television as a whole. The overall success of digital television will not be determined solely by the issues of channel choice which have hitherto dominated the television market and are the main focus of much discussion about digital television's prospects. It could be determined by the capacity of the different delivery systems, and broadcasters as a whole, to adapt to the implications of convergence and, in particular, to the transforming power of interactivity. We are deeply concerned that these implications are insufficiently grasped in this country, and that potential to profit from them in terms of employment and trade is therefore being jeopardised.

Interactivity and the Internet

(i) Interactive television

25. Television-viewing is classically characterised as a passive activity: the viewer sits at home and watches what the broadcasters choose to provide. In limited ways, this characterisation is already misleading. The remote control and the inception of multi-channel television have encouraged "greater promiscuity" amongst viewers, particularly children.[47] A "pseudo-interactive" service is already available and widely-used in the form of teletext. The teletext service on ITV and Channel 4 alone attracts a viewership of almost 20 million weekly. Over ten per cent of holidays in this country are sold through the Teletext holiday sections. The service is currently slow, relying on 1970s technology, but will become much faster and more varied as a result of digital television.[48]

26. The prospect of fully interactive commercial television services has been explored for a number of years. Telecommunications operators, including British Telecommunications (BT), have carried out a number of trials of interactive television services, including video-on-demand.[49] We took evidence from Video Networks, which has undertaken a pilot study of interactive television in Hull, which offered videos, games, education programming, home shopping and home banking. The video service was fully on-demand, so that films could be paused or "rewound" at will. The service was easy to use and did not require any familiarity with computers. Customers could move along a high street on the screen, enter a store, browse along shelves and click a button to purchase a product. The service could combine nationally competitive prices with local provision and delivery. Mr Simon Hochhauser, the company's Chief Executive, was confident that the product was ready for commercial launch.[50]

27. Others were far less sanguine about the prospects for tailor-made television-based interactive services of this kind. Mr Mathew Horsman considered that a full video-on-demand service was years away.[51] Dr Brian Evans of Tantara Digital Broadcasting thought that such services might prove "a non-starter" due to the transmission costs.[52] The Independent Television Commission (ITC) felt that "it is not yet clear that such services will provide to consumers the combination of cost, added value and user friendliness needed to make them commercially viable".[53] During our visit to the USA, we learnt that similar conclusions had been drawn from trials there.

28. Nevertheless, a major tailor-made interactive television product is likely to be launched later this year by British Interactive Broadcasting (BiB), a consortium including BT, BSkyB, Matsushita and Midland Bank. We saw an impressive demonstration of BiB's product in the course of our inquiry. BiB expects to provide an enhanced set-top box connecting to both a satellite dish and the public telephone network that will enable digital TV viewers to access interactive services. This will make available "a personalised, 24-hour High Street", including home-delivery shopping services, banking, public services and what BSkyB termed "the best of the Internet". In other words, BiB will not offer direct and comprehensive access to the Internet, but will make available web-sites finally determined by BiB itself. Mr Mark Booth, the Chief Executive of BSkyB, characterised the BiB product as "interactivity on simple items", drawing on the Teletext experience.[54]

(ii) The Internet

29. The Internet is a network of networks. It developed in the USA as a means of sharing computer resources. It is a global network of computers linked mainly via the telephone system and the academic, research and commercial computing networks. It has been developed on the basis of open, international standards. Its most prominent medium is the World Wide Web.[55] The Internet developed as a text-based publication platform. Yet recent advances in audio and video compression have enabled it to become a platform for audio-visual content. Much Internet content is underwhelming; the picture quality for most users was vividly characterised during one of our meetings in the USA as "herky-jerky"; the available screen size for video of reasonable quality in most cases remains small; it has been developed for the personal computer, the market penetration of which is far below that of the television. Yet, despite these disadvantages, the Internet is growing at a staggering rate. And we were told that before long picture quality will match the best television images as the bandwidth of the Internet delivery systems increase and compression and storage techniques improve.

30. In the words of a recent study by the US Department of Commerce, "the Internet's pace of adoption eclipses all other technologies that preceded it": it took radio 38 years to gain 50 million listeners; television achieved 50 million viewers in 13 years; the Internet achieved the same benchmark only four years after it was opened to the general public. Fewer than 40 million people around the world were connected to the Internet during 1996; by the end of 1997, more than 100 million people were using the Internet; traffic on the Internet has been doubling every 100 days. Some believe it possible that one billion people will be connected to the Internet in the next decade.[56] This growth is led by the USA, where recent audience measurements indicate that Web users already consume 59 per cent less television than average viewers;[57] but the growth is by no means confined to the USA. On-line penetration in the home in the United Kingdom, no more than 4 per cent in 1996, is estimated to reach 12 per cent by the end of 1998.[58] Mr John Birt, Director General of the BBC, told us that some parts of the BBC web-site were seeing 50 per cent growth rates per month.[59] There is evidence that, amongst teenagers, use of computer games and the Internet is taking the place of book-reading as well as television-viewing.[60] By the year 2010, BT expect around 90 per cent of the country to have an Internet connection.[61]

31. The Internet has developed as a medium of communication, education and entertainment, but its prospects are different in character from those of any other comparable medium because it is also becoming with quite extraordinary rapidity a tool for commerce. According to the US Department of Commerce, "over time, the sale and transmission of goods and services electronically is likely to be the largest and most visible driver of the new digital economy".[62] That Department refers to predictions that electronic commerce between businesses will amount to as much as $300 billion annually over the next five years. E-commerce could become the natural method of sale for intangible goods such as software, magazine articles, news broadcasts and insurance policies. The same method might offer many advantages for the purchase of many tangible goods. The US Department of Commerce describes as conservative an estimate that the value of Internet retailing could reach $7 billion by 2000.[63] All of this trade need know no international boundaries. There are few barriers, for example, to the direct purchase of CDs

or CD quality music direct from the USA, offering a valuable challenge to the domestic CD market in this country, where prices remain unacceptably high, significantly above those in the USA.[64] The Internet has the power to turn the idea of a global market-place from rhetoric into reality.

32. Mrs Barbara Roche, Parliamentary Under-Secretary of State at the Department of Trade and Industry (DTI), believed that "use of the Internet ... is really now absolutely essential to the way we run our business life".[65] She saw the potential for electronic commerce "really driving forward the competitiveness of the European Union".[66] The US Department of Commerce has pointed to the pivotal role of the information technology sector and the growth of the Internet in providing sustained economic growth with low inflation.[67]

33. The Internet, as a tool of buying and selling as well as a means of communication and entertainment, transforms the commercial prospects for interactivity in the home, on the television as much as on the computer. This point was made to us again and again during our visit to the USA. Whereas interactive services designed by broadcasters offer only those products made available by suppliers who have reached agreement with that broadcaster, the Internet represents a gateway to a global market-place. Commercial transactions of every sort, rather than video-on-demand, will serve as the main engine for the growth of interactivity.[68] This view was shared by some witnesses. Lord Hollick, the Chief Executive of United News and Media, described the Internet as being at the core of that organisation's business strategy: "It is the international distribution channel and it is where we will be spending most of our money, where we will be developing most of the products for [the] market".[69] Mr Mike Cook, Managing Director of Hughes Olivetti Telecom, said that the Internet would "dramatically change the ordinary customer's access to information and services and ... will stimulate also a huge range of services and a huge number potentially of new businesses or new industrial areas to service that demand".[70] So it can mean more trade, more exports, more jobs.

34. The Internet not only changes the prospects for interactivity, it also has a direct impact on what is now being broadcast. There are already between 500 and 1000 radio stations distributing programming on the Web, including sixteen in this country; there are a handful of dedicated Internet radio stations.[71] Over 150 television channels are available on the Internet.[72] Mr Birt thought that "we are not that far off the Internet ... emerging into an on-demand television service".[73] Very rapid improvements in compression technology are leading towards the delivery of broadcast quality services across the Internet.[74] As we learnt from our visit to Real Networks in Seattle, this technology is becoming accessible and affordable. Internet transmission is particularly suited to certain kinds of audio-visual product:

news and archive material: it is already possible to watch a number of news services from the USA and the United Kingdom, services both up-to-date and available at the precise moment to suit the viewer; an archive of concerts and programmes is available on the BBC Radio 1 web-site, for example;[75]

"distance broadcasting": the Internet is ideal for transmission of channels or stations of minority interest where that minority is not geographically concentrated; that could take the form of "niche broadcasting" for those with a shared hobby or interest and also broadcasting for those with a local interest away from a locality, such as Welsh speakers outside Wales;[76]

"desk-top broadcasting": there are few technical barriers to anyone with affordable equipment creating an Internet home page with moving video pictures.[77]

35. The Internet can operate not only as a platform for broadcast material, but also for material designed to complement broadcasting. In the USA, the WebTV box enables the viewer to watch and use the World Wide Web as well as broadcast material on a television set. It is envisaged that the process of switching between them could be as easy as switching to teletext, with, of course, a far wider range of content. This has the potential to broaden the viewing experience. For example, the BBC referred to plans to integrate television and on-line coverage of the Wimbledon Tennis Tournament, making available greater information about matches, instant replays on demand or even additional matches.[78] In Los Angeles, NBC gave us examples of vast numbers of viewers instantly accessing web-sites for individual programmes in immediate response to mentions of their addresses during transmission; this demand is at a time when, for most people, television and the Internet are available through separate devices. In the longer term, some witnesses believed that the Internet offered what Mr Mike Cook, termed "the capability for fundamental change in the way in which entertainment services will operate".[79] Microsoft Limited saw the emergence of the Internet as "one of the most fundamental advances in audio-visual communications of this century".[80] Mr Adam Singer, Chairman of Flextech, foresaw a unification of broadcast and other material around the concept of "browsable content ... The TV model is no longer relevant; ... all becomes a variation on an Internet theme".[81]

36. The broad vision of the Internet's potential extends far beyond its direct impact on broadcasting and entertainment. Mr Andrew Lees, Director of Microsoft Limited's Internet and Desktop Products Division, believed that "a Web lifestyle", when people would use the Internet several times a day as a matter of course, would evolve within ten years. This would create an opportunity for business "almost bigger than the industrial revolution" and would have an impact on people's lives in the home at least comparable to the industrial revolution.[82] We explored further its possible impact on Government and public services.

37. In November 1996 the then Government issued a prospectus for the electronic delivery of government services in a Green Paper entitled "government.direct".[83] This initiative has been taken forward by the incoming Government under the leadership of Dr David Clark, Chancellor of the Duchy of Lancaster. We were deeply impressed by the quality of Dr Clark's oral evidence and by the quality of the work he is doing that the evidence demonstrated. He has adopted, on behalf of the Government, a multi-faceted approach to the dissemination of information, developing information for touch screens and digital television as well as the Internet so as not to anticipate market determination of platform success.[84] The array of central and local government agencies facing a citizen, at present often confusing, could combine and co-ordinate their information. He held out the prospect of public services and accompanying information which were citizen-led rather than provider-led; many experiments were grounded in the realisation that "we do need to seek ways of empowering people".[85] To this Committee, this meant the potential for a simpler, more efficient, more consumer-friendly provision of government services to the public, including a more cost-effective benefits system.

38. Dr Kim Howells, Parliamentary Under-Secretary of State in the Department for Education and Employment (DfEE), expanded on the application of this approach in the field of education. The DfEE has been undertaking pilot projects, many of them including Internet usage, as part of the introduction of a National Grid for Learning, conceived as a means of disseminating a wide range of high quality information and materials of benefit to the process of teaching and learning.[86] Both Dr Howells and Mr Lees of Microsoft Limited gave examples of the power of the Internet and related technologies in schools to affect not only the teaching and learning experiences, but also the role of a school in a community.[87] Although he observed how the benefits could "spread out like the ripples in a pond", Dr Howells conceded that at present availability of the Internet in schools was "incredibly patchy" and that he was "far from happy with that coverage".[88] Dr Howells told the Committee that the Government considered it a priority to ensure that every school was linked to the Internet by the end of this Parliament;[89] that both BT and the cable industry were committed to assisting in the achievement of this aim;[90] and that the Government had committed £100 million in 1998-99 for schools to purchase hardware and software which would be distributed in response to development plans submitted by schools and local authorities.[91] However, this Committee is concerned that there is no commitment by the Government to ensure a computer on every child's desk in every secondary school within a specific timetable.

39. The Government is also seeking to promote the availability of new information technology elsewhere. The Government expects to make public services available through kiosks and other public access terminals. Dr Clark envisaged kiosks being available in shopping malls which would be open on a 24-hour basis.[92] BT demonstrated to us the broad range of services which might be available at an electronic kiosk of the future. All four Ministers from whom we took evidence made particular reference to the importance of libraries as a source of electronic information offering real access to local communities.[93] The Department for Culture, Media and Sport (DCMS) has subsequently published a consultation paper about developing "a public libraries IT network" as an integral part of its vision for the information society and has set a target for all libraries, where practicable, to be connected to the National Grid for Learning by 2002.[94] Dr Howells told us of a large suite of terminals in a library in Liverpool where "people were queuing up to use them".[95] This local success hints at the present limitation of public provision. To Dr Clark, the logical progression was towards services available even more directly to the consumer.[96] The heartland of the information revolution will be in the home.