Examination of Witnesses (Questions 160-179)
MR TIM
JENKS, MR
DANNY CHURCHILL,
MR LAURENCE
HARRISON AND
MR ADRIAN
NORTHOVER-SMITH
15 NOVEMBER 2005
Q160 Alan Keen: Can I just come to
another point which is connected very closely with it. It is the
switchover date that we are all scared of, and I am sure you read
some of the comments that the Panel made last week. There are
some things that can be done now, are there not? It is city centres
and not the rural areas that really have a massive problem, the
people in blocks of flats cannot get a terrestrial signal sometimes
and it is true, I know, that the cable companies still have a
lot of conversions to do in central London, conversions of equipment
from analogue to digital—they have to do some work, do they
not? Should that not be pushed along faster than it is being done
at the moment, or is that something that you do not realise?
Mr Jenks: I will start that one
off from the aerial industry point of view, but I cannot comment
on cable, I do not represent the cable industry, but from what
I know about it that has got some restrictions on geographical
constraints, whereas obviously signal broadcasts from a satellite
or even terrestrially can cover the nation quite adequately, as
we have already heard argued. However, what we have not seen mobilised
fully yet is a strategy to convince the landlords and the management
agencies of all these blocks of flats you mention that they have
got to make investment to convert their properties, to upgrade
them to digital. Technically, we have everything in place. There
are issues raised in our industry about capacity, but I am sure
that with the proper drivers in place to mobilise us—and
we are a very mobile industry, we are in vans, we are not tied
to workbenches—we can move wherever the needs arise, and
we do that quite effectively when broadcasters present us with
an issue—I am thinking back to the launch of Channel 5 and
the launch of satellite way back in the early Nineties when we
mobilised large numbers of guys to address installation issues.
We can do that again, as long as the drivers are in place to make
people want to do that upgrade.
Q161 Alan Keen: Can I come right
back to the beginning and the first question the Chairman asked
of you: is it being co-ordinated well enough, this is my concern?
Mr Churchill: Every consumer that
comes into a Dixons store or a bona fide retailer's store is given
the opportunity to postcode-check to see where they are in terms
of catchment and availability of the different systems that are
available. Once they have had that postcode-check they are told
what is available to them and they are told that they may well
have to do something about their aerial. We have affiliation with
CAI members etc so we can direct our customers to the aerial installer
if it is necessary, but the consumer is not just being left. That
postcode check is something they can do themselves on line or
they can get it in-store and our staff will check it out for them,
so they are not just being left. The important thing to remember,
as I talked about from the business plan, we need to get this
8.8 million. We are currently selling, if we take set-top boxes
out of the mix, over eight million television reception items
per year through the retail infrastructure of this country. When
you put boxes onto it, you are up to 11.5 million. What we have
to do is get the customer to buy the right product; they are already,
under their own volition, with their own money and their own pockets,
with no subsidies, coming out and buying this equipment. If we
communicate with them early and show them the benefits of digital
versus analogue, an awful lot of the task we face is going to
be carried out. It is as simple as that.
Q162 Rosemary McKenna: That is exactly
the point I wanted to follow up on, the point that Adrian made
about the fact that there are still three million people going
in and buying analogue.
Mr Northover-Smith: Analogue kit
came to 8.2 million and the Freeview set-top box sales are 3.2
million, so you have an excess of five million analogue pieces
of equipment being sold every year, over and above the digital
products that we are selling to convert them.
Q163 Rosemary McKenna: There are
two things. First of all, you said, Danny, and it was said by
the voluntary sector last week, that we are talking among ourselves
and that the people out there are really not getting the message
out that this is going to happen, it is a good thing and what
do we do to encourage people. Why are people still buying that
old kit; is it the retailers, should the retailers be doing something
about it? Should the manufacturers be doing something about it?
Mr Northover-Smith: First of all
I think it is important to say that I think all of us unanimously
support the digital tick logo, and that is absolutely fantastic.
Of course, it is being used by the BBC as a tail-end to their
advertisement, which is great, but actually the advertisement
explains all about how to get the BBC channels and then you get
flicked up the digital tick right at the end. Frankly, when we
go into stores it is very well represented in stores, but what
does it mean and who has actually explained this to the customer?
Nobody, yet, and that is obviously down to Ford and his colleagues
in order to make that happen. The very important thing that we
have to do though is to realise where the consumers are at the
moment, and it is not good enough waiting to look at putting our
advertising campaigns towards the back end of switchover, it is
absolutely essential that we do it from the front end so that
we can stem the flow of people buying the wrong sort of kit. That
will then enable us to sort out the problem people, because actually
the number of problem people will be much lower as a result of
the activity that we have taken very much earlier on.
Mr Churchill: It is not, if I
can say, all wrong kit. Every analogue set that is sold today
is probably replacing something else there now, so all we are
doing is talking about the same number of conversions that we
make. If we look at the 5.4 million conversions and convert that
to eight, then one of these analogue televisions walking out with
a set top box achieves our objective. One of these analogue televisions
walking out with a PVR with a digital receiver in it achieves
our objectives, so these products are not all going to be obsolete,
just because they are buying them now. If you look at television
sets as monitors, they are all equipped with the connectivity
to be able to turn that set into a digital monitor or a digital
reception device, so we have to get into the habit of separating
total market, analogue sets etc from the actual task of the digital
conversions we have to make. We can make that digital conversion
in-store if we sell an analogue television with a box or with
a PVR or whatever, and price will come into it of course.
Mr Northover-Smith: If I could
just add to Danny's point in terms of usability, because this
is something that I love to stick on, if you have an analogue
TV set, a digital set top box and an analogue VCR—for a
normal consumer, if you ask them to record a digital programme
using that combination of equipment, frankly is almost impossible,
and I would urge you to try it yourselves if you do not believe
me. This is why, again, we are really encouraging consumers to
look for the right sort of equipment that they can use and can
actually enjoy the benefits of digital through.
Q164 Helen Southworth: Can I ask
about the aerial aspect of these things? Alan described very succinctly
his issues around trying to get things to work and some of the
pilots are suggesting that there are going to be an awful lot
of people who are going to need aerial amendments to make stuff
work. That message is going to be going out to people and it is
going to be going out to people who have no idea what they are
asking for when they are actually getting somebody to come in
and do the job for them. There seems to be tremendous potential
there for the reputation of the aerial industry to suffer some
serious narks, when you match up people who do not know what they
are asking for and a very mobile industry that turns up in a van
and does the job for you, and you perhaps do not quite know who
they are or what you are asking for. What are you going to do
about that, are you discussing things with trading standards people?
What are you doing within the industry to make it easier for us
to buy from you and to make sure we get what we need and what
we want?
Mr Jenks: We are always talking
to trading standards over aerial issues, but thankfully it is
good news. Actually, we have been given a harder task from the
qualification point of view for the digital tick that we are all
in support of, in that we have to now have a national vocational
scheme in place to assess the competence of our installers to
see that they are going to do the job right. So as from a few
weeks back we launched a registered digital installer scheme whereby
our engineers, when they have proved their competence, will carry
an identification card to say this man is the man for the job
and he is going to tell you exactly what you need. It is interesting,
and I have evidence, that nearly 80% of the product we are selling
now is going to be "digitally compatible" so people
are being steered now and have been for quite a while down the
right path to go, as we are in a replacement market anyway, albeit
as a distress purchase. Nobody wants us, we are horrible people,
we are aerials—they are a bit like tyres on your car, you
only do it when you have to, nobody wants an aerial—but
when we get to the job if we are competent and can prove we are,
and can be identifiable, which is what we have put in place, then
we think that this problem is not going to materialise as people
fear it will.
Q165 Helen Southworth: What are you
going to do to make sure people know what to ask for, for the
digital tick? Is it going to be on the white vans?
Mr Jenks: When Digital UK do what
we know they are going to do, with the promotion that is rolling
out now, the registered digital installer scheme will be right
upfront and if you need something doing with your aerial, these
are the people you need to look for to do the job.
Q166 Paul Farrelly: I hope that not
only is there going to be in this respect the proper accreditation
schemes, but actually public service broadcasters do the public
a service in advertising this scheme so that we do not get people
running around and, frankly, give cowboys a bad name, because
there is all sorts of scope for that in the future. I just wanted
to come back to a point that my colleague Alan made earlier. Alan
said it was obvious almost that the digital switchover was good
commercially for you guys because it advanced demand for digital
kit, but is it commercially good for you? Would it not be much
easier if the market decided and drove the take-up? Is this switchover
daft commercially?
Mr Northover-Smith: This is a
commonly-held misconception that amongst the manufacturers we
are delighted about switchover; to us it does not make a great
deal of difference one way or the other, it is a government policy.
The interesting thing is what will happen throughout this, and
the reason we take such an interest and we are here and attend
all of these meetings is because we make products that consumers
want. Switchover is happening as a result of government policy,
therefore we will make the products throughout switchover that
consumers want. Our investment in terms of the factories to make
the products and the silicon, even further back, has to be managed,
based upon government policy and not consumer demand, as you so
rightly pointed out. Planning through this process from our point
of view is, frankly, going to be a nightmare, and if we vary in
any way from the timeframes that we have already had laid-out
to us in terms of the region by region switchover, we are going
to be making front-line investments in order to make the products
for those regions, and if there is any slip then it will cause
a catastrophic nightmare to the supply chain.
Q167 Paul Farrelly: Clearly, because
analogue can be converted it would be daft to criminalise sellers
or buyers of analogue equipment, you cannot go down that route.
Mr Churchill: You have to remember
that the consumer—it is the consumer mindset we are trying
to manage here really—is used to walking into a store and
buying something that they take home, plug in and play, and they
have been used to buying televisions with television receivers
built into them, and that is what they want to continue to do.
That is why they buy six million a year versus three and a half
million boxes when we are all going digital. The key issue for
us as an industry is that digital is absolutely the right thing
for us to be doing. You will see the stores full today of HD-ready
product; HD is only possible because we are going digital. Digital
is about capacity: for every one analogue channel that we have
got at the moment you can have two high definition channels or
eight sports channels or film channels, the capacity and the choice
that it offers to the consumer is massive, as every other digital
market has proven, so it is absolutely the right thing for us
to be doing. Are there going to be complications in a switchover
situation? Of course there are and we are very happy to take on
our share of that headache, despite it being a headache—and
nobody is going to hide the fact—because we are all very,
very much in favour of the end-game which is that the consumer
has got more choice, better quality products, we can use the capacity
that is now available and the condensation of the spectrum to
deliver better services. It is good for the industry and it is
good for the consumer, that is where we are going.
Mr Harrison: I would just add
to that and say that fundamentally we are where we are. Adrian
is right in that as manufacturers we were fairly agnostic, but
what we did call for consistently was the certainty of a date,
if it is going to happen, let us have a government announcement.
Now we have that, everybody is planning towards switchover and
any sort of change or shift in that timetable would be detrimental,
so the key to everything here is communication and education and
getting behind the digital tick logo.
Mr Northover-Smith: From my previous
comments all I wanted to do was simply to highlight the issues
that would surround us, I was not trying to be in any way negative
about the opportunities or the kind of technologies that would
come out as a result.
Q168 Paul Farrelly: It is not clear-cut.
Just thinking of the poor guinea-pigs of Border again in 2008,
you can foreseeably look ahead and not find a digital piece of
kit in Newcastle upon Tyne, for example, because there is a shortage
in Border, so the good people of Newcastle upon Tyne drive committedly
to the Border area, but obviously it would defeat the object to
allow them to buy the digital kit so you have to show your new
ID cards to prove that you live in the Border area and can buy
the kit. There are these nightmare complication scenarios and
clearly it would be quite wrong to expect you guys to hold commercially
unviable stockpiles of digital kit because you cannot accurately
predict the timing of demand, so how are these issues being addressed
at the moment?
Mr Churchill: Borders is only
a 300,000 home area and I think the rest of the country is going
to be more than happy to support Border in this situation. The
problem gets bigger when you get down to Granada and you are talking
about several million homes, and that is something that we have
got to address. It is an issue that we recognise and it is something
we have got to address, but my plea is that we get the communication
as early as possible. Whenever one goes into a marketing campaign
one looks at launching it and then keeping it going with customer
recall and reminders to people about what it is all about. For
this campaign we need upfront to get in there and communicate
to the consumer so that we get the growth curve as flat as possible,
otherwise we will have problems, there is no question, there will
be shortages of stock, staff, resource if we get to a situation
where all the demand is at the back end of each turn.
Mr Harrison: Central to that is
the supply chain business plan and I alluded to it at the start.
Once we put some of the numbers into that model and we can see
where we are going in terms of take-up and demand, if, for example,
that shows that we are not going to reach the penetration we need
to at a given point in time with regards to a specific region,
the challenge will then be at Digital UK level with regard to
actually moving, for example, communication budgets to actually
prime regions before we go ahead. That will be the challenge that
we face going forward.
Q169 Paul Farrelly: One last question.
I am personally terribly boring, I am a follower not a trendsetter,
I do not buy the new albums, I wait for the greatest hits, and
likewise in technology I do not buy the up to date digital cameras,
I wait for them to drop in price and buy them a year or so later.
In this scenario of the digital switchover, where there are four
states, I am already sceptical about the £132 per home, and
we have heard quoted by the BBC the costs of replacing kit when
we are looking at replacing VC recorders and televisions, but
with switchover are the costs to the consumer going to be higher
because there is not that incentive for the industry to reduce
prices?
Mr Churchill: I think the only
reason prices might harden is when there is a shortage of supply
it tends to be component supply, and any manufacturer of equipment
will use components in the most cost-effective products that he
produces. So if I only had 80% of the components I needed I might
be tempted not to put those into the bottom end product and put
them into the higher priced product, because for me it is more
commercially viable to do so. So when you get into markets of
shortage, the hardening of prices that I would foresee is where
component shortages mean the product has got to be used economically
and effectively for the companies concerned. At the moment there
is no indication there will be a shortage, there are products
coming in from the Far East and around, it is not just local manufacture,
and we are already producing 10 million to 11.5 million sales
a year, what we need is 8.5 million for seven years: we ought
to be able to meet it but we have got to get communication out
there immediately.
Q170 Chairman: Can I press you on
that. You say we have got to get to 8.5 million for seven years;
how long do we have if we are to avoid serious problems? If we
are to avoid people living in the Granada region queuing down
the street outside Dixons stores to get set top boxes which are
not in the stores because you have sold out, how long have we
got in order to get the demand up to the level to avoid problems
at the back end?
Mr Churchill: We have the next
six months to start getting the curve to grow. This Christmas
is put to bed now, it is too late, but if we could have had this
Christmas—if we were talking here in July or August I would
have said now for this Christmas to get that curve up as quickly
as possible. All we are looking to achieve is that customers walking
into the store with money in their pockets to buy a television
are making the right decisions in terms of what they are buying
and having in the mind the life span of the purchase they are
making and what they are likely to need to have in place during
that life span; that is where we have got to make the investment.
There are a lot of things being sold, technology today is vast;
people are talking about broadband, they are talking about flat
panel TVs, they are talking about HD-ready, they are talking about
new cameras and how many pixels, they are talking about new mini
pods and iPods and everything else, and within that quagmire of
technology communication, we have to get digital high and we have
to get them to understand what it means.
Q171 Chairman: Do you believe that
on the present plans of Digital UK they are going to achieve that
upturn in six months?
Mr Churchill: I am very impressed
with their enthusiasm and their commitment so far, yes.
Q172 Chairman: You think the six
months target is achievable on present plans.
Mr Churchill: It depends what
their budgets are like, I am not privy to that, but there is no
question that the effort is being made there.
Q173 Mr Sanders: We heard last week
that some set top boxes were badly constructed and one consequence
of this is actually high electricity consumption; what can be
done about this?
Mr Harrison: First and foremost,
manufacturers have actually made—this is in a recent Defra
report which I think has been highlighted either in the first
session or at the recent Westminster Media Forum event—over
the last six years 60% energy efficiency gains on terrestrial
receivers, and that trend will continue. We do have a code of
conduct and that sets certain standards for us, and I have to
say that with regard to integrated digital televisions the standard
there in standby, which is a real issue, is at three watts and
business as usual average for IDTVs is two watts, so we are meeting
and beating that standard. At the moment, they are currently by
far the most energy-efficient products in the marketplace. With
regard to set top boxes, there are specific challenges for manufacturers,
in the current price-driven market, to introduce the more sophisticated
products which are more energy efficient, and that is because
of cost and requiring to compete at a certain price point.
Mr Northover-Smith: Could I just
perhaps add to that from our own perspective because, fortunately
or unfortunately, we are not in the part of the market that you
just described because, as Laurence just said, we do have from
Sony's perspective very energy-efficient set top boxes and IDTV
sets. It is interesting that actually there are two different
perspectives here because from the consumer's point of view and
possibly from the Government's and the BBC's point of view, what
they want to do is promote cheap price points, which is fantastic
of course because it shows to consumers that in fact there is
a whole range of products out there for them, and an entry price
point is established in their mind, if you like. Of course, we
do have to accept that the products at those entry price points
do have limitations, both in terms of usability and environmental
efficiency as well. Of course, you then, on the other hand, have
the broadcasters, who are constantly talking about these lower
price products, and if we want to make products that do satisfy
the demands of the elderly and the special needs groups within
the community, then actually we as manufacturers need to be investing
more in R&D, more in creating a good user experience for our
consumers and, unfortunately, promoting very cheap prices does
not help us.
Q174 Mr Sanders: What information
is actually available to the consumer who is looking at a product,
and thinking in terms of cost, about what the running cost of
that box would be in terms of increased electricity charges, which
ought to be part of the equation in deciding which piece of equipment
to purchase?
Mr Harrison: I know that the current
set top boxes will show on the packaging or in the information
within it what consumption levels there are for the standby, for
example. Coming back to IDTVs, we are now working with the Energy
Savings Trust who are actually going to endorse IDTVs with the
Energy Savings Trust labelling, and that will give the consumer
some indication as to the level of energy efficiency they will
be getting when they buy that product.
Q175 Mr Sanders: That is probably
more important than just being told the energy consumption, because
I would not be able to convert what that energy consumption was
into what my unit cost was from my electricity supplier, so that
is actually quite encouraging. Will that be across a whole range
of products, or will it only be certain manufacturers or certain
retailers?
Mr Harrison: Currently that would
be for IDTVs because, as I said before, they are meeting and beating
the code of conduct energy efficiency levels.
Q176 Mr Sanders: So not for other
electronic products.
Mr Harrison: Currently, no, the
initial scheme will be for IDTVs.
Q177 Mr Sanders: Will the market
deliver an adequate range of affordable digital TV equipment,
suitable for people with sensory, learning or physical disabilities?
Mr Harrison: There is one thing
that I wanted to say on the energy efficiency, which I think is
quite important, and then I will come back to the question. One
of the things that we are involved in with Intellect is working
on something called the Energy Efficiency Commitment. This is
an Ofgem-sponsored scheme whereby energy suppliers are required
by the Treasury to give a certain percentage of turnover to improving
domestic household efficiency. To date, that scheme has not applied
to the brown goods sector, but we are now working on a proposal
and hope to include that for the brown goods sector, and that
would extend beyond IDTVs. What would happen within the scheme
is that when, for example, a set top box beats the business as
usual average, then the manufacturer would receive a subsidy from
the energy suppliers for doing that, and we believe that would
create a good incentive for manufacturers to actually get nearer
those targets. That is an important point to make. With regards
to accessibility, certainly on the standard access areas, manufacturers
have actually made very good improvements with regards to subtitling
now being the norm on most digital products and also included
within the criteria of the digital tick logo. We also have a situation
where you can now see on the electronic programme guide which
programmes have access facilities. Where it has been more challenging
is in the area, for example, of audio description, and that has
simply come down to the fact that it has been very hard for manufacturers
to make a commercially viable business case to introduce some
of that technology into the marketplace. We do have, as you are
aware, the Netgem box, which is on the market at the moment and
has audio description, and I did see Netgem speak recently at
an EU conference on the accessibility and they said at the conference
that they had actually completely under-estimated the level, for
example, of consumer support they would have to provide with introducing
audio description. It has been challenging, therefore, and I know
a number of manufacturers have looked at introducing AD but because
they have been unable to make a business case, they have not been
able to do it.
Q178 Mr Sanders: All Members of Parliament
have within their constituencies hotels and residential care homes;
some of us have more than others, so I am particularly interested
in knowing about what equipment or technical solutions are available
for upgrading multiple dwelling units in order to go digital,
and what promotional work has been done in that area to alert
the people running those establishments that they have got a big
problem coming down the track if they do not wake up to this?
Mr Harrison: At the moment there
are very obvious promotions being done, for example by satellite
and cable providers to landlords and those in multiple dwelling
units. Currently we have, within Digital UK, a number of work
streams set up which will eventually have specific aims and objectives
at addressing some of these key issues, and there is one of those
work streams looking at multiple dwelling units. Certainly, the
supply chain would play an active role in that, and I think the
key within this has got to be communication and education, and
that has got to be driven by Digital UK. Landlords have to know
what they need to be doing, what action they need to be taking
and, again, that has to be driven by Digital UK.
Q179 Mr Yeo: Have you got an estimate
of how many people who can currently receive analogue will simply
not be able to receive digital terrestrial?
Mr Churchill: Currently 98.9%
is analogue and they are talking about 95% or 96% plus on terrestrial
after switchover.
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