Analysis: In the 1980’s, existing television sets in Europe were based on PAL or SECAM standards. However, another standard was being developed by Philips and other European companies, HD-MAC. Existing television sets based on PAL or SECAM could not receive HD-MAC transmissions. However, two variants surfaced, D-MAC and D2-MAC, and were compatible with existing television sets and, the forthcoming new television sets based on HD-MAC. British Satellite Broadcasting:
In December 1986, British Satellite Broadcasting won the bid from the British Independent Broadcasting Authority to provide commercial service on three of the five high-powered DBS channels. However, one of the stipulations required by the IPA was that the BSB had to use the untried transmission standard, the D-MAC.
BSB business model: To start-up (i.e. program production and acquisition, marketing, satellite depreciation, and etc.), BSB’s initial fixed costs were estimated at 75%-80% of its overall cost structure. In order for D-MAC transmissions to be received, consumers had to purchase satellite dishes that cost £250. In addition to this one-time cost, users of BSB’s programming subscribed for £10 a month. Based upon past patterns of VCRs, “BSB estimated that it would have to install 400,000 dishes by the first year of broadcasting (1990), 2 million by 1992, 6 million by 1995, and 10 million by the year 2001.” Total start-up cost was estimated at £500 million. Sky Television:
Unlike British Satellite Broadcasting’s use of D-MAC, News Corporation’s Sky Television took a different approach and focused on the use of PAL. It chose to broadcast via the higher risk, medium-powered Astra communications satellite. To lease four channels for 10 years would cost Sky Television only £100 million. In order for transmissions to be received, satellite dishes were sold at £249 including installation. News Corporation forecasted that 1 million satellite dishes would be in installed by 1990 and 5-6 million by the end of 1994. Total start-up costs were estimated at £100 million.
Sky Television was able to undermine BSB with its launch by over a year. BSB discounted Sky Television as a competitor because of the IBA’s poor assessment of Astra’s technological abilities. BSB should not have ignored the competitive threat of PAL, considering the D-MAC transmission had never been tried before.
2. Had BSB made a few alternate choices prior to Sky’s entry into the market, the outcome of BSB could have been drastically different. The first significant change could have been closing the deal in signing British film rights for five of the major Hollywood Studios. Originally, BSB was the only contender in obtaining the film rights, but they were holding out for access to films within six months of their release on video instead of the customary twelve months. When News Corporation announced their entry into the market, however, there was suddenly a bidding war for the rights to these films. Consequently, BSB had to commit £400 million in order to secure the rights of four Hollywood Studios. If BSB had originally signed the British film rights prior to Sky’s announcement, the bidding war could have easily been avoided and BSB could have saved millions.
Another significant change could have been the way they structured their financing. BSB had hoped to include Amstrad into the consortium in order to raise £222.5 million for the first round of financing. However, Amstrad decided against it because there was a disagreement at how much the receiving equipment should be priced at. At the time, the impact of losing Amstrad seemed miniscule because they were able to offset Amstrad’s finances by including seven new companies in the BSB consortium. However, it was later revealed that Amstrad had partnered with Sky Television and provided a significant amount of funding and supplies. If BSB negotiated with Amstrad and set the receiving equipment...
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