BT sees a future in small audiences

BT has a problem. As technologies reaching the home gather pace, its traditional business of renting and maintaining fixed link telephones is in danger. Whether it be mobile phones, 3G, voice over IP, wireless networking, all of them are chipping away at BT’s traditional business. On the other hand, Ofcom is pressing for local loop unbundling and a more level playing field for broadband competitors.

In response, BT is looking at other ways in which it can use its strengths to add value to its customers while not falling foul of the regulator. One such innovation is BT Entertainment based on the concept of narrowcasting – transmitting content over broadband to small specialist audiences.

The CEO of the new division is Andrew Burke. As a former Sky TV executive and head of BT Retail, he looks well suited to bringing content to homes via BT’s existing infrastructure.

Explaining BT’s thinking he said ‘Early adopters wanted a fast always on connection. As we go to the early majority stage there will be a big shift we see the services on top of broadband as a key differentiator.

‘BT sees the services as being communications, entertainment, information and monitoring. Broadband will be the data pipe into the home. Entertainment will differentiate our broadband offering and improve satisfaction for our services and reduce churn.’

The key to the strategy is broadband at sufficient speed and enough subscribers to create a sufficiently large audience that can be broken down into special interests. The numbers may be starting to stack up. Today, some 25 per cent of UK households have broadband. Just over a month ago, BT announced that it would be doubling the speeds to its broadband customers. while seen as a good commercial move to keep its existing user base and fend off rivals like AOL and Wanadoo while maintaining revenues, providing a 2Mb line to the vast majority of its broadband customers opens the opportunity to explore the long sought for killer app.

For video on demand services, currently a 2Mb line is critical. According to Burke, customers can receive DVD quality video which includes stereo audio at speeds of around 1.5-1.6Mbit. This means that with a 2Mbit line that gives you a TV quality signal and enough bandwidth for the PC to do what it needs to do

In addition, new video codecs are coming along all the time such as MPEG 4 and Windows Media Player 9. With MP3 we have seen a 30 per cent increase in efficiency every year for the past few years and expectations are the same with MPEG4.

As cable and satellite TV has already proved, it is possible to broadcast to tiny audiences and still make money if it is on a pay per view basis. However, the infrastructure of TV means there are audience sizes below which it is nigh on impossible to turn a profit. The collapse of OnDigital – the failed predecessor of FreeView – was partly due to the tiny audiences of a few thousand who were watching premium priced Football League matches.

Broadband is different. Transmission costs almost nothing and, as the web has proved, there can be any number of sites for any interest. BT Entertainment seeks to translate that model into a profit centre where tiny audiences can subscribe to video on demand channels to their PC.

Andrew Burke explains ‘ With broadband you can deliver content you can’t get elsewhere which means niche. You can film a Conference League football game for £2-3000 so the economics of production and distribution are good. The trick is to get the right niches. If you can get upward of 2-3000 people looking at that content and paying a couple of quid to see it you’ve got an interesting business.’