Market Impact Assessment of the BBC’s High Definition Television Proposals A report of market research conducted for Ofcom by Illuminas Publication date: 18 September 2007 Contents Section Page 1 Executive Summary 1 2 Background and Research Objectives 6 3 Research Methodology 8 4 Profile of current HDTV subscribers 12 5 HDTV and its impact on viewing behaviour 18 6 The Impact of HDTV on other TV-based activities 33 7 Perceptions and usage of the trial BBC HD channel 39 8 The proposed 9 hour BBC HD channel 47 9 The proposed overnight BBC HD channel 58 Section 1 Executive Summary Background, objectives and methodology BBC HD is currently in a trial stage and is being offered over both Virgin Media V+ and Sky HD. It has been decided to apply a Public Value Test (PVT) to the BBC’s proposal to make the trial BBC HD channel permanent. The central objective of this piece of research was to assess the possible impact of the BBC launching an HD channel. The research comprised the following elements: • 400 x 30 minute, in home CAPI interviews with subscribers to HDTV; and • 10 x diary-depth interviews with respondents from the quantitative stage. Adoption, understanding and experience of HDTV The backing of major brands, such as Sky, BBC and Virgin, as well as equipment manufacturers like Sony and Panasonic, appears to have reduced perceived risks of adoption and driven take-up of HD rapidly through the adoption curve. There are still misunderstandings about HDTV. Two fifths (41%) of HDTV subscribers think that HD quality pictures are available on all TV channels rather than just dedicated HD broadcast channels. The longer people have had an HDTV subscription the better their understanding that HD quality pictures are only available from HD channels. This could be for one of two reasons: • those who adopted earlier are more technically sophisticated; or • the longer people have an HD subscription, the more aware they become that HD quality pictures are only available through HD channels. Most HDTV subscribers are very impressed by the improvement in picture quality over SD TV. The perceived improvement is greater the larger the size of the screen being watched. Current HD channels are generally very well liked. 1 Impact of HDTV HD channel viewing represents, on average, a third of all time spent watching TV among HDTV subscribers. This is higher among Sky customers (37%) than Virgin Media customers (22%), probably due to the wider range of HD channels available on Sky. Two fifths (43%) claim to have increased their overall TV viewing since subscribing to HDTV. This is higher among younger people. The main types of programme that are watched more after HD has been adopted are Films, Sports and Documentaries. For most subscribers, the programme is the main driver of TV viewing, not picture quality. • The HD channel is preferred and most will always check whether the programme is being shown on an HD channel before they start watching • But, most will not choose to watch a HD programme over a programme they like Most subscribers (88%) have decreased their viewing of SD TV channels since getting HD. The main reduction in viewing has been of those channels that are also now available in HD. A small proportion (20%) of HDTV subscribers claim to watch some SD channels more frequently. Since adopting HDTV, subscribers report: • A slight net decrease in watching non-HD DVDs and videos.; • A large net increase in the time they spend watching HD DVDs and Blu Ray. • A slight net increase in time spent gaming. The trial BBC HD channel and its impact Awareness of the trial BBC HD channel was fairly high among HDTV subscribers (75%, prompted). Nearly half (46%) of HDTV subscribers currently watch the trial BBC HD channel, making it the most widely watched HD channel. Sky One HD and Sky Movies HD are the next most widely watched with 42% and 41% penetration respectively. Males and the 45+ age group are most likely to watch the trial BBC HD channel, and are more likely to at least be aware of the other HD channels available. Most subscribers (87%) choose the BBC HD trial over BBC 1 in the event that a programme is available on both channels. 2 As a result of starting to watch the BBC HD trial, subscribers report: • An overall increase in TV viewing – especially among younger/ mid-age and more recent subscribers. • An increase in viewing other HD channels. • A decrease in viewing BBC and non-BBC SD channels. Subscribers also claim that the BBC HD trial had an influence on their decision to purchase HD DVD / Blu Ray and that it has significantly increased their use of hard disc recorders. The latter was especially the case among older subscribers The proposed 9 hour BBC HD channel There are high levels of interest in the 9 hour BBC HD channel concept. • Three quarters (76%) claimed to be either extremely or somewhat interested in the concept. • Interest in the concept increases with TV screen size. • Those who currently watch the BBC HD trial are far more interested in the idea than those that do not currently watch it. Subscribers claim that if the proposed BBC HD channel ran for 9 hours a day they would: • Watch more TV overall than they do now (42% ‘slightly’ / ‘much more than now’). • Watch about the same amount of DVDs as they do at present;. • Play games about the same amount as they do now;. • Use their hard disc recorder more than they do now (32% ‘Much’/ ‘A little bit more’). • Watch more HD DVDs/ Blu Ray than at present - possibly because they would record more programmes or films onto HD DVD or Blu Ray than they currently do. By far the single biggest negative impact of extending the BBC HD trial channel would be on viewership of SD BBC channels, especially BBC 1. Making the extended BBC HD channel available on Freeview could represent a potential 3 threat to Sky HD and Virgin HD revenues: • 7% claim they would definitely cancel their subscriptions to these HD channels and 19% claim they would possibly cancel their subscriptions. The proposed overnight BBC HD channel There is some interest in the proposed overnight BBC HD channel, but less than there is in the 9 hour channel. (51% were extremely or somewhat interested, compared to 76% for the 9 hour channel). • As with the 9 hour channel, those who currently watch BBC HD are far more interested in the idea of the overnight channel than those who do not currently watch BBC HD. • The overnight BBC HD concept appeals to a subset of those interested in the 9 hour BBC HD channel. Subscribers claim that if the overnight BBC HD channel was available they would: • Watch more TV overall than they do at present (26% ‘slightly’ / ‘much more than now’ – cf 42% for 9 hour BBC HD). • Use their hard disc recorder more than they do now (43% ‘Much’/ ‘A little bit more’ compared to 32% for 9 hour BBC HD). The overnight BBC HD channel would result in: • A reduction in viewing of BBC SD channels (27% ‘Much’/ ‘A little bit less’). • A very slight reduction in viewing non-BBC SD channels (18% ‘Much’/ ‘A little bit less’). • No net impact on other HD channels. 4 Summary of impact on viewing of HDTV and the current and proposed BBC HD channels Table 1.1 Summary of impact on viewing of HDTV and the current and proposed BBC channels Predicted Predicted Current TV TV usage if TV usage TV usage if usage the before the 9 hour including all overnight getting BBC HD HDTV BBC HD HDTV channel is channels channel is launched launched Total hours viewed 23.0 25.6 26.8 26.1 Hours viewed in SD 23.0 17.3 16.6 16.5 Hours viewing BBC SD 8.1 7.0 6.7 6.5 Hours viewing other SD channels 15.0 10.3 9.9 10.0 Hours viewed in HD 0.0 8.3 10.2 9.6 Hours viewing BBC HD 0.0 1.2* 2.3 1.8 Hours viewing other HD channels 0.0 7.1 7.9 7.8 * This reflects usage of the current BBC HD trial 5 Section 2 Background and Research Objectives Background High Definition Television (HDTV) involves the broadcasting of television pictures at a higher resolution than “standard television” is broadcast, resulting in sharper, clearer and better defined TV images and an improved viewing experience. At present two platforms offer High Definition (HD) content to viewers in the UK: • Sky: involves a one-off payment for a Sky HD box (also a PVR) and a monthly HD subscription in addition to the customer’s usual subscription. Gives access to the HD versions of channels the customer is already subscribed to, if available. • Virgin Media: involves a monthly subscription to the V+ PVR package. Gives access to the trial BBC HD channel and to pay-per-view on-demand HD content. Various types of content are available via these platforms, including: • Sky Sports HD, Sky Movies HD, Sky Box Office HD, Sky One HD, Sky Arts HD. • National Geographic Channel HD and Discovery HD. • Virgin Media’s HD “on demand” services. • The trial BBC HD channel. The last of these (BBC HD) is currently in a trial stage and is being offered over both Virgin Media V+ and Sky HD (as well as via a very small scale trial using Freeview). It has been decided to apply a Public Value Test (PVT) to the BBC’s proposal to make the BBC HD channel permanent - one component of the PVT is a Market Impact Assessment (MIA).