To bring on a digital TV boom, Russia needs to create the right infrastructure, dedicate frequencies, and get set top boxes to consumers. Finally, we will need content for dozens of new channels.

Sergei Skripnikov

The International  Telecommunication Union, the most authoritative organization in telecom, very recently began assigning a rating to the countries of the world reflecting the extent of digital technology in use, the Digital Access Index (DAI). Russia ranked somewhere in the fifties, despite the dramatic growth of cellular communications and telephony in general. “This is because we are horribly behind in the number of television channels and radio stations available to the public,” believes Gennady Sklyar, Director of the Russian Television and Radio Network. Russia will only be able to close this gap through large-scale development of digital television.
The main difference between digital and analogue broadcasting lies in the fact that digital broadcasting uses special compression technology that allows broadcasters to pack almost any kind of information into the signal being transmitted. This not only speeds up transmission, but also significantly reduces the cost of broadcasting.
Television broadcasting in Russia currently uses the infrastructure belonging to two state companies, Kosmicheskaya Svyaz (Space Communications), responsible for the satellite part of the system, and the Russian Television and Radio Network (RTRN), which takes care of matters on the ground. A satellite equipped with a certain number of transponder broadcast antennae plays a key role in signal transmission. Until very recently, one transponder could transmit only one analogue channel and the number of antennae on the old Gorizont-style satellites were limited. For this reason, satellite transmission using Kosmicheskaya Svyaz’s services cost channels a pretty penny. High transmission prices acted as an entry barrier for many potential television broadcasters.
In the last several years, all this has changed. Gorizont satellites have been actively replaced by the new generation of Express-A and Express-AM, larger and more reliable models with large numbers of antennae. “In terms of the satellite component in broadcasting, we have a multi-agency plan to go digital in 2005,” says Sergei Poresh, Director of the Broadcasting Development Division at KS. The entire project will cost $850 million and Sberbank provided most of the financing. However, while the satellites will soon be ready to start transmitting digitally, the question remains as what the RTRN is going to do on the ground. The RTRN system was set up in the 1970s and is currently in such as state of disrepair that even the most optimistic observers are forced to admit that a significant portion of the system could soon collapse before broadcasters’ very eyes.
According to estimates from the RTRN, refitting old receiving and broadcasting stations will cost $700-800 million. No one has any idea who would finance the project. To find equipment suppliers, the RTRN plans to hold an open tender but doesn’t trust Russian manufacturers. Foreign companies are already moving in on the Russian market. For instance, in Moscow and Vladivostok, a broadcasting system from the German company Rhode & Schwarz is already in operation. Nonetheless, the Telemedium Company (a 100% subsidiary of Telekominvest), which has a permit to conduct experimental digital broadcasting in St. Petersburg, decided to use a Russian-built Mart transmitter and has no complaints. According to the company’s general director, Dmitri Volobuev, the Mart was not only exponentially cheaper to buy and service, but is also a hybrid transmitter. It can transmit in analogue format and with a quick change of parts can easily start transmitting digitally. Already around five of these transmitters have been set up in St. Petersburg. Thus, it’s too early to make a final decision in favor of foreign companies.

Troubled airwaves

According to the approved plan, the move from analogue to digital will happen gradually. This will lead to a serious problem related to dedicated frequency bandwidth for digital broadcasting.
It’s no secret that the airwaves in Russia are extremely militarized, and putting certain frequencies to civilian uses requires a great deal of time and money. The international agreement in force in Europe, Chester `97, stipulates that digital broadcasting can take place in the regular decimeter range (470-800 MHz), if there are free frequencies. If there aren’t, the transmission should move to 800 MHz. Even in Europe, there were practically no free ranges to be found (except in Great Britain). For this reason, transmission began at 800 MHz. The situation is similar in Russia. The only area that is free across the entire country also falls in this range.
However, this range is already taken, both by CDMA and AMPS cellular providers and by various special agencies, such as the Federal Defense Service and the Flight Control Service. At the moment, the Ministry of Communications is actively trying to free up the frequency by getting CDMA off the market and changing AMPS licenses to the GSM standard. Yet it is unclear how long negotiations with the federal agencies will take.

Seven billion dollars

The last leg of a digital broadcast’s journey is signal receiving and processing in viewers’ homes. And while a standard antenna can pick up the signal, only digital televisions or set top boxes are capable to processing it.
Digital TVs now cost $100 more than identical analogues sets. Analysts believe that consumers will only gradually trade in their old analogue TVs for new digital ones. Only a few well-off, die-hard techies will immediately change sets. Lower income viewers will not be able to afford digital and will have to rely on set top boxes. Expert only discovered one Russian company currently working on building digital sets, the Kozitsky Factory in St. Petersburg. Kozitsky makes Raduga brand TVs and has developed a hybrid model that can receive both types of signal.
The problem of getting boxes to the masses seems far more pressing. Even the cheapest Korean-made box costs at least 45 euros in Europe, and that means with transportation costs, customs duties, and retail mark-up boxes will cost between $100-120 in Russian stores. The future looks bright for Russian manufacturers in this area, as well. According to Volobuev, a set top box is really only a microchip with special software. There are not that many companies making these chips in the world, and software development and final assembly play particularly important roles. Telemedium’s general director emphasized that in St. Petersburg alone he knows of several companies looking to hire Russian programmers and grab their piece of the digital pie.
According to the Moscow Television Research Institute (MNITI), there are currently at least 75 million televisions in Russia. This means that even by the grossest of estimates the market for receivers could total $7 billion after the move to digital.

Everybody needs it, but it’s not for everybody

Right now, the players on the digital market need to come up with the optimum strategies allowing them see a maximum return on their resources invested in the infrastructure of tomorrow’s investment market. Where will the bulk of their earnings come from, subscription fees or ad income? Russian companies should look at what happened to those who came before them to the digital market.
The pioneer in digital television was Germany, where back in 1996 DF1 began paid broadcasting of its programming using DVB technology. The new company quickly gained popularity and many channels across Europe began to move toward paid digital broadcasting, until the British company ITV-Digital went under and served as a warning for everyone else. The unfolding crisis in the UK was solved thanks to the joint efforts of the BBC and the BSkyB service belonging to Rupert Murdoch. Their joint company Freeview won the competition for ITV-Digital’s bandwidth and began broadcasting digitally across the entire UK for free. The Germans soon followed suit. When analogue transmission in Berlin finally came to an end last spring, a significant number of channels were already available in digital freeview format. This practice was copied around Europe.
Digital companies in St. Petersburg also opted for pay TV at first. “Until we came to the digital market, none of us had been involved in TV before. At first we simply bought up promising channels on the open market. But even back then we understood perfectly that pay TV is a dead end. We just didn’t know how to make our own channels back then. It was obvious to us that we wouldn’t last long on Western content alone, and so we immediately started to create our own channel,” Dmitri Volobuev recounts. In early 2004, Telemedium stopped its paid service, in part due to the recent changes in Europe. Of course, Russian analogue channels use a freeview format, but once broadcasting goes digital, there will be exponentially more channels and accordingly a lot more options for both viewers and advertisers. The federal airwaves monopoly will end and the main competitive advantage will be content and not how many viewers a channel can reach.
The folks at Telemedium are confident that the boom could begin at any moment. 70-80 new channels would give companies plenty of room for dozens of new niches such as interest-oriented TV, age group-oriented TV, ethnic programming for ethnic minorities, and pay-per-view. This in turn will spark a shake-up on the advertising market and will lead to cultural changes. Basically, the way we interact with TV will change. Everyone will get television made just for them, but it won’t be for everybody.

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