Australian Digital Cable

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Digital Cable Takes Fast Lane in Australia

By Alan Breznick

Alan Breznick, a veteran business journalist and analyst, is the editor of Cable Digital News and a frequent contributor to other communications industry publications.

Despite getting off to a relatively late start in Australia, digital cable is enjoying a warm reception in the land Down Under so far.

Australian cable subscribers have been signing up in droves for digital video programming packages since Foxtel, the nation's leading cable and satellite TV provider, began rolling out the offerings in its major metropolitan markets in March 2004. With Australia's two other big pay TV providers, Austar and Optus, joining suit in the past year and a half, it's now estimated that at least 700,000 cable customers, or close to half of the nation's cable subscriber base of 1.5 million, have already opted to shell out higher monthly fees for packages of digital video programming.

“It's grown very rapidly from zero to 700,000,” says Mike Paxton, a senior analyst at In-Stat, a Scottsdale, AZ-based research consulting firm that tracks digital cable growth throughout the world. “They have a bigger uptake rate than the U.S. market already.”

Indeed, the digital cable penetration rate has not yet climbed past the 40% mark in the U.S. despite steady growth in the number of digital video subscriptions over the last eight or nine years. At the latest count, 26 million of the estimated 73 million U.S. basic cable homes had upgraded to digital cable service.

Of course, Australian cable operators have had the mathematical advantage of starting from a much smaller customer base than their larger American MSO counterparts. In a nation that still depends mainly on over-the-air distribution for its television signals, only about 20% of Australia's 7.6 million TV households subscribe to some type of cable package. Moreover, just 25% of all TV households, or a total of 1.9 million homes, subscribe to either cable or satellite service.

Still, Australia's initially enthusiastic embrace of digital cable has definitely impressed industry analysts. The nation's quick take rate particularly stands out in comparison with the rest of the Asia/Pacific region, where digital TV has generally been slow to catch on so far.

In China, for instance, a mere 1% of the nation's 380 million TV households have signed up for digital service, according to a recent report issued by eMarketer. Similarly, in India, only about 5% of the country's 108 million TV homes have enlisted for digital. In contrast, a relatively high 25% of Australia's 7.6 million TV homes now take digital service, and that percentage is swiftly increasing.

“They're (Australia is) about five years roughly behind the U.S,” Paxton notes. ”But, except for Hong Kong, they're well ahead of everyone else in the Asia/Pacific area.”

Australian pay TV providers also are well ahead of their broadcast counterparts in recruiting digital customers. Although digital cable and satellite TV offerings have been available to viewers for less than two years, pay TV providers already account for a combined 1.1 million digital subscribers, or 55% of all digital TV homes in the country. In contrast, Australian terrestrial broadcasters account for only about 800,000 digital TV households, even though they control 75% of all of the nation's TV households.

“Pay TV providers are leading the field in digital TV,” says Ben Macklin, a senior analyst at eMarketer, a New York-based research consulting firm that also tracks digital cable growth around the globe. In his firm's recent report on TV trends in the Asia/Pacific region, Macklin predicts that cable and satellite TV operators “will play a significant role in driving digital TV adoption through their unique content and interactive and advanced TV features.”

Industry analysts credit several factors for Australia's early success with digital pay TV. For one thing, they point to the Australian government's strong push for all-digital TV transmission. Similar to the U.S. and U.K. governments, the Australian government established a legislative framework for the transition to digital TV broadcasting at the beginning of the decade. As part of this framework, the Australian government set 2008 as the cutoff date for analog TV, although this deadline may now be extended two or more years to give broadcasters a bit more time to complete the transition.

The national government also mandated that Australian broadcasters use the European DVB set of technical standards, rather than the U.S. ATSC system, for digital broadcasts. In addition, the government mandated that broadcasters transmit programs in both standard definition TV (SDTV) and high-definition TV (HDTV) formats, joining the U.S. and Japan in imposing that requirement.

“There has been an all-digital push in Australia, much like in the U.K.,” Paxton says. He contends that the Australian government, like the British government, has been more aggressive than the American government in promoting the conversion to all-digital transmissions.

Analysts also cite the heaping helpings of video programming and other features that the pay TV providers are serving up in their new digital packages. In a nation with just a handful of conventional TV broadcast stations, digital cable service offers as many as 130 different channels from 51 different programmers, including 21 companies that are either Australian-owned or Australian-based.

In fact, the typical digital cable lineup features multiple news, sports, movies, kids, music and general entertainment channels, including such American programming stalwarts as Animal Planet, BBC World, Bloomberg Television, Cartoon Network, CNN, CNBC, Discovery Channel, Disney Channel, E!, ESPN, Fox News, The History Channel, MTV, National Geographic Channel, VH1 and The Weather Channel. In addition, pay TV providers now offer interactive programming guides and personal digital recorders (PDRs) as part of their digital goodies.

Furthermore, the experts argue, cable and satellite subscribers are more likely to pay a bit extra for digital TV service than their over-the-air counterparts because they're already used to paying for their analog multi-channel service. Put another way, they've already gotten over the hump of paying some kind of fee for TV service so it's easier to get them to pay more.

“If they are analog subscribers, they're very willing to upgrade to digital,” Paxton says. “They're more amenable to upgrading to the next level of technology.”

Analysts cite sharply declining digital TV equipment prices as a prime factor as well. With digital set prices falling by about 25% a year and competition among multiple TV set manufacturers still growing, Macklin notes, digital receivers are now widely available for less than $200 ($Aus), about $146 U.S. as of year end 2005.

“The volume and range of digital TV equipment continues to grow strongly in Australia,” he says. He also ticks off figures from the industry body Digital Broadcasting Australia (DBA) indicating that consumer electronics makers sold 920,000 digital set-top boxes and integrated digital TV sets to retailers and installers in the second quarter of 2005, up 143,000 units for the quarter.

Besides all these factors, industry analysts give plenty of credit to Foxtel, which has led the pay TV push into digital services for more than a year and a half. Backed by Telstra, which is Australia's biggest telecom operator, and News Corp., Foxtel launched cable service in Australia a decade ago and now boasts about 1.2 million cable and satellite subscribers in a number of major markets.

Since introducing its digital packages in March 2004, Foxtel has used installation discounts, service freebies and other promotions to generate as many as 13,000 new digital installations per week. Thanks to this fast pace, it signed up at least 650,000 digital subscribers in the first 18 months of service, accounting for about 60% of all digital pay TV homes. Austar, a regional satellite TV provider, accounts for nearly all of the rest of the digital TV households.

Foxtel also is marketing its digital cable packages to other cable customers through a new “content supply agreement” with Optus. Under that agreement, Optus began selling the Foxtel digital service to its approximately 165,000 cable subscribers in Sydney, Melbourne, and Brisbane in early November. Known as “Optus TV Featuring Foxtel Digital,” the service offers more than 100 digital channels for prices ranging from $50.95 ($Aus) ($37.28 U.S.) a month to $99.95 ($Aus) ($73 U.S.) a month.

With 60% of Foxtel's customers and nearly 80% of Austar's customers already upgraded to digital service, the two companies recently unveiled an ambitious plan to convert all Australian pay TV homes to digital service and switch out analog service totally by March 2007, just three years after digital cable first launched. In a joint press conference in late October, Foxtel CEO Kim Williams and Austar CEO John Porter also committed to launching at least two full-time HDTV channels by 2008.

“They are driving this timetable themselves, many years ahead of the government's plans to switch of the analog terrestrial signal,” Macklin says.

As a result of this aggressive drive, analysts expect Australian pay TV providers to make greater subscriber gains over the next four to five years. By 2010, for example, eMarketer projects that cable and satellite TV operators will boost their share of the overall TV market to 36.8% from today's 25.4%. While terrestrial broadcasters will retain the upper hand in the market, the consulting firm also projects that digital cable and satellite subscribers will nearly triple to more than 2.8 million subscribers.

“There isn't really much competition,” Macklin says. “There are now no major hurdles facing the rollout of digital cable.”