KEY POINTS:
For so long the only digital game in town, Sky TV is preparing to welcome a intruder into its multichannel TV world.
Television commercials for Freeview are due to hit the airwaves tomorrow night, with the system going live next week, which will mean that "digital doesn't equal pay anymore".
For New Zealand, the gulf between free-to-air TV - One, Two, Three, C4, Maori TV - and Sky is vast. There's no onscreen guide, programmes cannot be booked to switch on when needed, there is scant live sport and screaming commercials punctuate every movie. Sky chief executive John Fellett told the Herald on Sunday that Freeview - the digital joint venture between normally competing free-to-air channels - is unlikely to affect Sky's core business.
"All it's doing is taking the first step from analogue to digital and to that degree the same competition we face from TV One, Two, C4 Three and Maori television is free to air and will be free to air in the new digital environment, so no changes there."
The new free-to-air channels likely to be put on Freeview could have an impact on Sky's own free-to-air channel - Prime - since it competes for the same pool of advertising dollars.
Freeview general manager Steve Browning says that Sky has been "the only digital game in town" so the big challenge he faces is to make people realise that "digital" doesn't equal "pay" anymore.
He says that overseas experience has shown that as free-to-air digital services expand, the rate of pay TV subscriber growth "flattens".
Sky boss Fellett says he doesn't expect this to happen.
While Freeview in the UK has grown dramatically, so too has BSkyB.
"I would hope Freeview damages me in the same way it's damaging BSkyB," he says. "We'd be growing a couple of points faster!"
Freeview in the UK said this week it had overtaken pay TV company Sky as the most popular way of watching multichannel TV.
The UK Freeview has more than 30 channels, available for a one-off cost of £30 ($81). Many televisions now come fitted with the freeview decoder. More than 11 million homes in the UK now have Freeview.
A report in the Guardian newspaper report this week said Sky has "maintained Freeview is not in competition with its pay TV service".
Fellett says Sky has not been resting on its laurels, waiting for rivals to surpass it with new technology. Sky launched its MySky personal recorder box before Freeview had been announced, as part of its drive to deliver Sky in different ways.
"Consumers want a lot more channels, they want it on every device and they want less and less of me determining that 8.30 is the best time to watch this movie," says Fellett.
Despite the expansion in types of programme delivery and the increasing popularity of devices such as MySky, Fellett sees Sky's future revenue streams remaining around the monthly subscription bill.
He cites Sky's recent foray into broadcasting through Vodafone cellphones as something new and technologically advanced, yet still based on the subscription model.
Sky's revenues from non-subscriber services at Prime may be affected as it searches for advertisers. But because of its sporting rights it will not be initially offered to Freeview users. Freeview is initially only available through satellite but when it starts being broadcast "terrestrially" next year, Prime should be available.
A new way for Sky to grow revenue can be seen in the looming arrival of its next generation MySky boxes, due for distribution next March.
While Fellett thinks Sky could sell between 3000 and 4000 of its $599 MySky boxes a month, it is restricting sales to just 1000 a month, so not too many of the old boxes will need to be replaced next year. It's likely existing MySky users will be given the next generation boxes free of charge.
They will have enhanced memory capacity for recording programmes and be high-definition capable - able to display the higher-quality pictures on the appropriate screens and users will be able to record three channels while watching another.
Sky's revenue from its pay-per-view services sits at about $1 million a month, but offering true movies on demand should mean more subscribers spending more per month than their standard subscription.
Even without true pay per view, Sky is enjoying good times, expecting company-wide profits to rise from $60 million last year to between $80 million and $90 million this year.
Fellett says the future of Sky is about more than technology though, since people will subscribe only if there's something they want to watch. He points to the company's record low "churn rate", which measures how many subscribers are cancelling their service, as evidence it is showing programmes people want.
"Every time we add something like MTV, or the Documentary Channel, that becomes a catalyst for someone to call us. We've added channels every year and we've been able to keep growing the content.
"Once they come for MTV, they sign up for other things, like pay-per- view events and SkyWatch [the monthly listings magazine]."
There had been little change in the amount of sporting content being offered and movies had also been relatively unchanged. High-definition broadcasts of sports and movies simply had to be part of the future for Sky, otherwise a competitor would quickly step into the gap.
"New technology is always expensive and always takes a while to have it take off," says Fellett.
The same thing happened with the switch from UHF to satellite broadcasting in 1997. "If we hadn't had done that, we would have been wiped out now by competitors."
As Sky embraces new technology as a way of keeping one step ahead of the competition, Freeview has the challenge of convincing people that its new service is nothing intimidating.
Browning says people tend to be scared by new technology, so the marketing and publicity campaign around Freeview's launch is designed to stress its simplicity.
"The last thing we want people to think is that this is a major technology leap. It is a technology driven change, but we're playing down the technology," says Browning.
Going digital
Freeview is backed by a consortium of TVNZ, CanWest MediaWorks, Maori Television and Radio New Zealand. It will initially include TV One, TV2, TV3, C4, Maori TV and Radio NZ National and Concert.
It will be switched on next week, on Wednesday, and new channels are expected to be added later this year, including a 24-hour NZ news channel.
It will have an electronic, on- screen programme guide.
Users buy a set-top box for about $300, but there will be no monthly subscription like Sky's.
