This report explains why we are pessimistic about the short and medium term prospects of the global digital TV supply chain. While some recently published forecasts of digital TV penetration remain unremittingly optimistic, our own estimates suggest the number of digital homes may reach only 160 million by 2005. Not only are we bearish on demand but we find an industry that is concentrating on consolidation rather than unsustainable subscriber growth. Although some operators such as BSkyB are well on their way to profitability others face huge uncertainty over subscriber numbers and margins. But operator consolidation will not entirely solve the core issue facing the industry: that the current cost of an STB cannot be recouped by increased ARPU. To become profitable operators will require lower costs of content rights and STBs - and lower churn. These are all negative trends for the supply chain and will lead we believe to a 17% decline in global STB shipments during 2002 - a shortfall of 6m units over 2001. Furthermore due to declining average selling prices, we expect the STB market will not recover to 2001 value (approximately $7bn) until 2004.
lack of a price advantage over GPRS or 3G tariffs
a small base of prospective users