Digital TV: The rocky horror show

By SIMON HENDERY

Be afraid, simple viewer. Be very afraid.

The digital television revolution unfolding before your eyes is a combination of WWF Wrestling, the Friday Horrors and Mastermind.

The brain-bending side of this drama is enough to send former teacher Rick Ellis scurrying for the whiteboard in his Auckland office.

The TVNZ chief executive scrawls out a matrix featuring the three key elements of the complex digital mix: content, transmission platforms (satellite, terrestrial, cable) and access devices (TV sets, computer screens, 3G mobile phones, palm-tops).

Then he neatly summarises the battleline that has been drawn as his company and its major digital TV rival, Sky Network Television, square off in the fight for viewers.

As a state broadcaster, TVNZ wants to deliver its programming through whichever platforms and devices viewers demand, he says.

"Providing," he says, "the conditions surrounding access are value-enhancing to a very important state-owned enterprise-taxpayer [funded] asset."

That means: get ready to fork out for two set-top decoder boxes and make room on the coffee table for another remote if you want to receive both Sky and TVNZ's digital offerings.

While Sky has offered to relay TVOne and TV2 through its satellite network, that does not appeal to TVNZ, which wants the freedom to add new channels as it sees fit.

"Digital is all about multi-channel, wide bandwidth," Mr Ellis says. "Why should we, particularly as a state-owned broadcaster, seek to be limited in the way we expand our services to the nation?"

So, after a failed attempt to woo Sky and Government intervention against the costly option of going it alone, TVNZ hopped into bed last November with cable operator TelstraSaturn.

The deal gives TVNZ a cheap (under $10 million) entry into the digital arena, and delivers TelstraSaturn a national audience.

But can the relationship go the distance? The two companies admitted this week that the launch date for beaming their combined satellite signal into homes has been delayed.

Initially they hoped to have the service running by April or May, but now Mr Ellis will commit himself only to "well before the end of the year."

They have yet to decide which set-top boxes they will use, how viewers can buy them and what additional interactive services will be offered.

Mr Ellis roundly denies industry rumours that the delays imply the deal with TelstraSaturn is souring.

"There are a lot of misconceptions going around out there."

The delays are simply due to the need to grapple with technical issues, he says. TVNZ is on a 10-year transition to a fully digital service and wants to get the first step right.

Across town, Sky is also suffering from a case of timeframe vagueness.

It is on the verge of launching long-awaited new services based on the Open TV interactive operating system.

Initially it will offer an on-screen programme guide and a weather service customised to viewer requirements.

Interactive games will follow and by mid-year, it says, it will offer a TV-based e-mail service, although details - such as how much it will cost - are yet to be decided.

In terms of the digital shakedown, Sky begins the rumble with the upper hand over TVNZ. Of its 400,000 subscribers, 224,000 are on digital.

Sky chief John Fellet is confident that with new capabilities those numbers will keep growing.

The downside of Sky's rapid digital subscriber-base growth is the huge losses it is chalking up as it subsidises the cost of putting decoders into homes.

Investors and analysts seem happy with that approach. The company's share price stood steady last month when Sky announced a $19.6 million half-year loss.

On the other hand, the price fell when Telecom bought a 12 per cent stake in the company, amid concern that it was a founding shareholder which sold out - Tappenden Holdings, the investment vehicle of businessmen Alan Gibbs and Trevor Farmer.

Back at TVNZ, Mr Ellis does not have the option of a big spend-up to attract viewers. He will need to offer non-interactive capable decoders, likely to cost viewers between $100 and $200, as well as more expensive interactive models.

Digital television industry observer Bob Cooper says TVNZ's aim with digital television is to push interactivity an area where it sees it can regain ground from Sky.

To keep the TelstraSaturn deal sweet, TVNZ appears likely to agree to launch the digital service with second-hand, non-interactive decoders from TelstraSaturn's Australian parent company, Austar.

Mr Ellis says because the deal with TelstraSaturn is just the first stage of its changeover, "maybe we don't have to offer all the bells and whistles from day one."

He says he is about a month away from finalising exactly what the company will offer at launch time.

Meanwhile, Telecom's $192 million buy-in to Sky is further evidence that media companies are jostling their way into two powerful packs, squaring off against each other in the local market.

As well as its Sky shareholding, Telecom also has a stake in publisher INL, which owns almost half Sky TV.

An example of the deals being done: Sky's chief financial officer, Paul Smart, says Telecom internet service provider Xtra is the forerunner in the bidding to host Sky's new e-mail service.

The alliance is likely to encourage other big media players like TVNZ and Herald publisher Wilson & Horton to discuss working together.

And while viewers await the next episodes of the digital television drama, at least one business sector is revelling in the uncertainty.

Television rental firms are aware that when Britain went digital, the rental business grew 300 per cent as consumers dithered.