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dab digital radio

Virgin and Sky – Platform Wars, Net Neutrality and DAB Digital Radio

The “Virgin Media v. Sky” spat has generated a great deal of polemic, quite a lot of headlines, and moments of absurdity.

Much of the coverage has focused on the financial aspects of the deal, speculating on how much advertising revenue Sky will lose versus the number of subscribers who will defect from Virgin Media. Virgin seem to have the sympathy of the media industry, but I don’t see many subscribers sticking up for Virgin; boards are full of people saying they’ll switch to get Sky One. (That I find hard to understand).

Far more interesting is the underlying issue of platform access, and how it affects all content providers and platform providers, across digital TV, the Internet, and radio.

Prior to the recent outbreak of hostilities, Sky had forced down the payments it gave to Virgin Media for Virgin’s content channels (Living TV, Bravo etc.) from GBP30m to GBP5m a year. Virgin Media had to swallow this, because without the 8.5m Sky homes, their business models fell below the critical mass needed to support them. The speculation is that Virgin would have lost GBP80m in revenue from being off Sky; in reality, without Sky the channels simply would have ceased to have any viable audience and gone under. You could argue that Freeview might have helped (and was this the reason for E4/Film4’s miraculous conversion from Subscription to FTA?), but capacity on Freeview is tight and there’s little in the way of a viable subscription infrastructure.

Virgin Media were held ransom by Sky for access to their platform. Sky has the bulk of the market for subscription TV. When Virgin tried turning the tables, they didn’t have the market size to follow through on the bluff. Sky will take the loss on the chin, and continue their aggressive advertising to get people to dump cable for satellite with renewed vigour and focus.

This has parallels with the calls for and against net neutrality. There’s no doubt that genuinely impressive on-line experiences (or even just simple VoIP) demand Quality of Service, and it’s that element that costs money. My 10MBit/s link is great (declaration: I’m a Virgin Media/Telewest customer), and generally runs at 6MBit/s. But I would gladly either contribute a bit more, or see my peak bandwidth decline, if only it were consistent and subject to less jitter. The VoIP can be great, it can be awful – I want to pay for consistency.

The concept is that service providers who need QoS to their users should pay for it, and then pass the cost onto their users (if they choose to). But this involves actively monitoring and prioritising packets on the net, installing private circuits, and a billing infrastructure. It all begins to look a bit like the Sky satellite platform. Some elements of Sky are tightly regulated, but as the Virgin Media/Sky situation has shown, there’s always some unregulated element that can be exploited to turn the screw on undesirables and force them off the platform. I believe in net neutrality, but I’d like to pay for QoS.

How does this affect radio?

Radio has approached the fragmentation of platforms in a pretty open-minded way (in the UK at least; it’s not the case in the US, and that in turn drove the demand for satellite radio). We pay fees to platform operators and in turn they pass our little old audio signals onto their platform base. We’re even available on mobile phones, because the networks don’t filter out public network traffic (except Three, who stop everyone doing anything useful, and wonder why they struggle to get decent ARPU off their network).

This largely seems to happen because:
a) it’s not hard work for the platform operators
b) it doesn’t use much bandwidth
c) they could use a bit of pin money (I believe it pays for the Christmas Party)
d) consumers have a surprisingly disproportionate passion for radio relative to items a)-c).

So our simple multi-platform life exists beneath a rock, largely undisturbed because platform operators simply don’t think about it.

What would happen of one of the operators decided it wanted to run radio stations. Maybe they thought they could deliver a better, more integrated, more modern experience to their subscribers than the existing brands? (It might not take much thought). Given the state of media stocks generally in the UK, they might just buy someone to do that.

But surely their next move would be to help their own businesses by blocking competitors? Or at least, incentivising use of their own services. Radio can’t take it for granted that we’ll always get a level playing field on carriage, and how will our business models look if we suddenly lose 10, 30 or 50% of audience through being priced out of a platform? (The BBC’s FreeSat project looks like a splendid insurance policy against this kind of event if it is operated as promised, and gets a decent household penetration).

This should help radio broadcasters justify supporting DAB Digital Radio as a platform more. The spectrum is provided free by the government, on a public service basis, to keep radio relevant and in business and connected directly to its listeners without falling foul of platform operators’ agendas. Granted, there are a few rogue DAB Digital Radio multiplex operators who make Sky’s behaviour look positively reasonable, but they’re in the minority and will eventually go out of business given a bit of competition. The majority of multiplexes are broadcaster consortia, led by their members who are also their content providers. The best multiplex businesses are those which seek to apportion cost and investment fairly between the users, but limit their aspirations at that point. This allows content providers to innovate and compete with each other, taking full advantage of the substantial technical opportunities in the Eureka 147 spec.

The detractors of DAB often forget to look at the big picture. Whilst nitpicking about this and about that, they’re handing over control of their distribution and their margins to platform operators who have no sentimentality about radio. They should take up the offer of free spectrum, build some modestly priced and effective digital networks, and stay connected to their own listeners.

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