The digital debacle: where to from here?

Hopes of a competitive pay television market were dashed when TelstraSaturn backed out of a partnership with TVNZ.

What could have turned into an all-out war between Telstra/TVNZ and Sky Television has ended in early surrender as TelstraSaturn puts plans on hold and investigates a possible defection to Sky.

TVNZ insists that it will go ahead with a free-to-air digital service next year, but what will it have to offer viewers?

What is digital television?

The traditional way of receiving the television signal has been an analogue system. Digital TV uses new transmission systems and computer technology to transmit sound and pictures which are then received by an aerial, satellite dish or cable.

To decode the signal back into sound and vision requires either a set-top box connected to your present TV or a digital "integrated" set with a built-in decoder.

Digital broadcasting allows many more channels to be transmitted on fewer frequencies, each with more consistent picture quality and crystal-clear sound.

With the right equipment, interactive services, such as on-screen shopping, banking, internet access and e-mail, are also possible.

Interactive TV also offers new possibilities - for example, you may be able to choose sports coverage from different camera angles or create your own action replays.

British viewers of the reality show Big Brother on digital TV this year were able to choose from four screens covering two current areas of the house, one two hours earlier and the last four hours before.

What is the difference between digital television and what most people have now?

The cosmetic difference is in the quality of the pictures and sound. But because more channels can be transmitted, it offers more choice to viewers.

Buying a subscription to Sky's digital service could give you more than 30 television channels and radio stations, including TV3 and TV4, and Prime.

What was proposed between TelstraSaturn and TVNZ?

The alliance planned to offer a satellite pay television service operated by TelstraSaturn and a free-to-air digital service from TVNZ.

The advantage of the partnership was shared operating costs and the combined bargaining strength to bid for films, international programmes and sports rights such as the All Blacks' tour at the end of this year.

TelstraSaturn is talking to Sky about selling its rights to the All Black matches, although TVNZ says it will still screen delayed coverage of the games.

For viewers, there would have been an alternative pay television operator to Sky Television, but with the complication of having to have another box on top of the set to decode Telstra's signal.

TelstraSaturn, which is geographically limited with a cable service that operates in Wellington and Christchurch only, could have covered the nation, using satellite space leased from TVNZ.

In return, it would have helped TVNZ set up its services, providing and running some of the infrastructure.

Although Telstra's pay service has now been canned, the telecommunications company has told TVNZ it will still support the free-to-air service.

TVNZ spokesman Glen Sowry said TelstraSaturn had reaffirmed its commitment to providing the "head-end" technology in Lower Hutt, which picks up the TVNZ content and helps beam it to the satellite.

By going out on its own, TVNZ will have to attract viewers to a service which is effectively a simulcast of its existing services, plus Prime, the future Maori channel and possible educational channels and interactive services such as e-mail and the internet.

Mr Sowry says the quality of the set-top boxes it will use is critical to the service and the extras it could offer to encourage viewers to invest in a set-top box - at a cost of about $500 - and receive the service without paying a weekly subscription.

"[TVNZ's service] is for those viewers that do not wish to subscribe to pay television.

"Essentially, this is a stake in the ground for the future. Digital television is happening, so what we wanted to do, and what we intend to do, is to develop capability that is going to ensure that in the future New Zealand television viewers are able to view free-to-air content without having to subscribe to a pay TV operator.

"In addition to that ability to view TV1 and TV2 in that environment, we're looking at what types of applications and enhanced content can also be delivered over that platform that viewers will find of value and encourage them to make the investment in the set-top box. It may likely include a a personal video recorder and the ability to browse the internet."

By way of comparison, installing Sky Digital could cost anywhere from $99 to $495, and the weekly cost of receiving the free-to-air channels of TV3, TV4 and Prime would be $4.

What are the consequences of the deal's collapse?

TVNZ chief executive Rick Ellis could be feeling the political heat of his second failed digital venture, after last year being unable to convince the Government that TVNZ should enter into a $200 million deal with British cable giant NTL.

TVNZ says it will still launch its free-to-air service, but whether it hopes to find another strategic partner or go out on its own remains to be seen.

Time will also tell what added extras TVNZ will offer viewers to entice them to the new digital service.

Without TelstraSaturn's pay service, and if viewers are not keen to spend money to get TVNZ's free-to-air service, the state broadcaster may be forced to join Sky.

"If in the future we reach an agreement with Sky which sees open access between the two networks, then certainly we will be delivering TV1 and TV2 on the Sky platform," Mr Sowry said. "There are discussions on-going with Sky and they will continue."

Does this mean Sky will dominate pay TV?

Sky is certainly in a strong position now TelstraSaturn has withdrawn its competing service.

It has 422,000 subscribers to its pay television service - more than 246,000 of them paying for the digital service.

There are hints that TelstraSaturn is talking to Sky about an alliance in which Sky would run Telstra's pay television service in return for telecommunications services such as phone, television and internet services.

That leaves no obvious competitor on the horizon.

Why was the Telstra-TVNZ deal so controversial from the start?

Rival broadcasters said the company would have been introducing outdated set-top boxes, and going head-to-head with Sky TV's already well-established digital services.

Both operators would be delivering digital versions of One and TV2, offering better picture quality for viewers in outlying areas.

A source at Australian digital pay TV operator Foxtel who did not want to be named told the Herald this year that the Austar boxes were rapidly being dropped in Australia because they did not meet emission standards, interfered with other TV and radio signals, and had been cracked by hackers trying to gain free access to services.

He said we were seven to 10 years away from a set-top box that would do what was necessary to make interactivity a commercially viable service.

Critics said the Austar boxes gave TelstraSaturn a cheap route into digital TV but little more.

While confusion surrounded TelstraSaturn's choice of technology, some had also asked whether the operator's belated arrival in the digital TV market would interest enough consumers.

What has been the political fallout from the deal's collapse?

National MP Murray McCully said TVNZ had been left "dead in the water" after being dumped by TelstraSaturn.

He told Parliament yesterday that TelstraSaturn's decision to withdraw from the digital deal was caused "substantially" by Broadcasting Minister Marian Hobbs' neglect.

"New Zealand won't get to ride the knowledge wave if the relevant ministers' backsides are firmly parked in a deckchair on the beach - and that's where they are.

"Television simply cannot proceed with its current digital plans now that TelstraSaturn has pulled the pin."

Ms Hobbs yesterday "guaranteed" that TVNZ would still be able to mount a viable, digital, free-to-air service.

"Just as Saturn has decided to postpone the launch of its satellite digital pay television services, this does not affect Television New Zealand's plans for a free-to-air digital service."

She also rejected a suggestion from Mr McCully that TVNZ stood to lose a substantial amount of the $12 million a year it had agreed to pay for transponder space for the joint digital service.