BBC plans to provide broadband audio and video services have received a cautious recommendation from the communications regulator following a market impact assessment. Ofcom anticipates that linear television viewing may fall by up to 30% over the next five years as a result of video-on-demand and similar services.

The proposed BBC iPlayer would provide a seven-day catch-up service featuring a large proportion of programming available for download over broadband, as well as simulcasting services over the internet and making selected radio programmes available as downloads without digital rights management restrictions.

A corresponding catch-up service would also be available to cable and broadband video services, elements of which are already provided through video-on-demand.

In concluding its public value test, following a three-month period of industry consultation, the United Kingdom communications regulator makes a number of recommendations to the BBC Trust which will ultimately be responsible for any approval of the proposed service.

Ofcom observes that the demand for services delivered over broadband is developing rapidly. It suggests that over the next five years linear television viewing may fall by 20-30%, to be replaced largely by the increased use of on-demand services. A similar pattern is anticipated for audio programming.

The regulator says it is important that the BBC should take a proactive and forward-looking approach to reflect likely changes in audience behaviour and expectations.

However, it adds that it would not be in the wider public interest for the BBC’s involvement to restrict competition, innovation or choice. It notes that “unchecked, the BBC’s power in nascent markets could harm the stimulus of competition necessary to ensure quality content for the long-term”.

The BBC Trust said in a statement that the Ofcom market impact analysis forms only part its public value test process, adding that “in reaching our eventual decision, we must also consider the potential public value created by the on-demand proposals”. The Trust said its decision “will be based on an informed judgement of all the evidence, in the best interests of licence fee payers”.

Ofcom says that the three video services proposed by the BBC could account for around three billion viewing hours a year by 2011, or around 3% of total viewing hours in the UK. It believes that a significant proportion of this usage is likely to represent an increase in overall use, as people watch and listen to material outside the home.

It is estimated that the proposed internet television catch-up service could attract around 1.4 billion hours a year by 2011, representing around 1.6% of all video viewing in the UK, giving the BBC a 26% share of the internet video-on-demand market.

An estimated 860 million hours of simulcast internet viewing are anticipated by 2011, or around 1% of total UK viewing hours, giving the BBC a market share of 47% of internet simulcast services.

Around 770 million hours of downloaded audio programmes are anticipated.

Concerns are expressed about the concept of “series stacking” which would allow users to view an entire series of programmes within seven days of the broadcast of the last programme in a series, which has been described as equivalent to “giving away the boxed set” of programmes.

Ofcom suggests that this could compete with commercial services and recommends that the scope of a series is more tightly specified. It leaves this as a matter for the BBC Trust, but recommends that “if it is not possible to specify a workable method of substantially reducing the scope of series stacking, then for precautionary reasons we would recommend that series stacking should be excluded altogether”.

Ofcom further notes that the ability to store downloaded programmes for up to 13 weeks before they are viewed “should either be removed or substantially reduced”.

Based on an assumption of downloading 13 programmes a month, each on average 40 minutes long, encoded at a data rate of 800kbps, the average user will download over 3GB of data a month.

The cost of the broadband capacity to support the proposed service is put at anything between £400 million and £830 million over the next five years. Ofcom leaves this for the BBC Trust to consider in making its own public value assessment.

Ofcom considers that “an increase in demand for broadband services is entirely consistent with the BBC’s public purposes”. It also notes that the provision of simulcast television could stimulate service providers to support multicasting.

With respect to future similar services on other retail platforms, Ofcom warns that the BBC Trust should consider whether these are offered on a non-discriminatory basis. It stopped short of recommending that material should be available to other providers on non-discriminatory terms.

Feedback from other stakeholders suggests that simulcast services are less contentious, primarily because the other major broadcasters are all likely to offer similar services over the internet, with no direct charge to consumers.

Audio downloads
Plans to provide an audio download service without digital rights management restrictions are broadly welcomed by Ofcom as having the potential to make a strong positive contribution to the growth of the market for audio downloads in the UK.

However, Ofcom notes that certain types of programming, particularly live classical music or book readings could have “a significant negative effect on investment in competing on-demand services, and related markets”. It recommends that the BBC Trust consider excluding book readings and either restricting or excluding recordings of live classical music.

Rights management
The proposals for internet video services are currently based on Microsoft Windows Media Player and its associated digital rights management restrictions. Ofcom notes that there are plans to develop a Real Player alternative in the near future and considers that this will be important to “lessen the potential impact on the market for media player and DRM software”. It says it “will also have the benefit of extending service availability to users of other operating systems such as Apple’s OS X”.

Ofcom is silent on the possibility of using a non-proprietary open standards approach or the use of digital rights management in general, saying that it has not carried out a comprehensive review of the media player and digital rights management markets as it would not have been practical in the context of its market impact analysis.

Ofcom suggests that the BBC Trust should employ existing fair trading guidelines and rules on cross-promotion to ensure that the BBC “does not use its ability to cross-promote its services to secure an unfair competitive advantage”. It also suggests that the budgets provided by the BBC, but not published by Ofcom, should be included in the relevant service licences. Any extension of budget would require a further public value test and any addition to the scope would merit a further market impact assessment by Ofcom.

In conclusion, Ofcom submits that its recommendations “will secure the best balance between enabling the BBC to bring new services to benefit licence-fee payers while avoiding the most significant adverse consequences for the development of the market and hence the overall interests of viewers and listeners”.

Finally, Ofcom notes that while its recommendations would lead to a reduction in the scope of the proposed services, the BBC would still be free to offer the excluded services on a commercial basis, through its commercial subsidiary BBC Worldwide.

The full recommendations are available together with detailed background information in a report published by Ofcom, entitled BBC new on-demand proposals.