‘We will have a digital world 10 years from now. To assume that we wouldn’t is to assume that we’d still be in the era of black and white TV,’ says Phyllis Yaffe, CEO of the broadcast arm of Toronto-based Alliance Atlantis. And she is not alone in this belief.

While the short-term impact of the digital evolution seems negligible, with current diginet average minute audiences topping out at a measly 13,000 viewers, many buyers have yet to consider how last fall’s launch of some 50 new digital channels will alter the media landscape in five or 10 years’ time. And while everybody knows that digital penetration is on the rise in Canada, many don’t realize just how quickly digital is expected to take over the television broadcast industry.

Data released on June 27 by Ottawa-based Decima Publishing indicates that the number of digital subscribers in Canada rose by 6% in the first few months of 2002 to nearly three million, or 29% of the estimated 10.5 million TV subscribers. And by the end of this year Decima expects that figure to hit close to 3.7 million.

But it’s the long-term prognosis for digitals that buyers should start preparing for, researchers say. According to Mario Mota, publisher and editor in chief at Decima, digital penetration could hit five million within the next five years. ‘It is not inconceivable that we’ll see three million satellite customers alone in the 2004 to 2005 timeframe,’ he predicts. He adds that the gap between analogue and digital subscriptions will narrow to a 60:40 ratio in five to seven years’ time.

Consider the fact that in the U.S., digital cable households are replacing analogue households at such a rate that digital will take the lead by 2004, according to PricewaterhouseCoopers’ Global Media & Entertainment Outlook, published in May (See charts on page 13). Meanwhile in Britain more than 50% of the population already watches digital multi-channel TV – and analogue is expected to be completely phased out by 2010.

Canada, although still lagging behind in terms of subscription numbers, is actually adding digital subscribers at a faster rate than the U.S, according to Decima, while analogue subscriptions continue to drop. Decima’s March report indicated that the digital subscriber base increased by 16% in the fourth quarter of 2001, compared to 11% in the U.S.

Researchers therefore expect Canada to follow the pattern of the U.S. within the next few years.

‘In the U.S. in April the audience for specialty TV and pay-TV exceeded the audience for conventional networks for the first time,’ says Yaffe. ‘It usually takes Canada a year or so to catch up but we are very close behind,’ she says.

In fact, PwC expects digital cable to soar to 4.5 million Canadian households by 2006, accounting for 49% of the cable universe compared with 15% in 2001, and Canada is expected to be the fastest growing country in terms of entertainment and media spending, a prediction that PwC attributes in part to the new diginets.

So what does all this mean for the buyers? For now, digital audiences are too small to attract much attention, but when owning a digital set-top box is as common as owning a telephone, the media landscape will undoubtedly see some extraordinary changes.

‘There has been a marked effect on conventionals already,’ says Peter Lyman, lead partner for communications, entertainment and media at the Ottawa office of PwC Canada. ‘They have lost market share and lost advertising dollars. The digital launch is not yet profitable, but they can see an erosion of conventional services.’

Digital growth can only be a good thing for advertisers, according to Wayne Sterloff, VP of specialty networks at Calgary’s Craig Broadcast Systems (which broadcasts MTV and TV Land in Canada). ‘With digital, consumers tend to order a handful of channels that are of particular interest to them, so we can deliver the exact niche audience that the client wants. Even if it’s a bit more expensive, it becomes the most efficient way to make a buy,’ he says.

Yaffe adds: ‘It makes the buyer’s work more difficult because they have to buy a range of specialties rather than one broad conventional, but it will certainly benefit their clients by offering very targeted audiences.’

However, Sherry O’Neil, VP, director of broadcast buying at OMD Canada in Toronto, is skeptical about PwC’s forecasts for digital growth. ‘Unless something changes dramatically in terms of technology and cost, I don’t anticipate many changes in the next five years,’ she says. ‘If the cost of digital is cut in half I could see it happening, the same way it happened with calculators and VCRs. Until we see a larger penetration of digital it will remain a niche opportunity,’ she says.

But she does concede: ‘Eventually digital will hurt conventional in terms of ad buying, maybe in 10 years’ time, but not five.’ O’Neil also points out that while in the U.S. the Federal Communications Commission (FCC) requires all broadcasters to convert from analogue to digital by 2006, this is not the case in Canada – and that makes a big difference.

Nonetheless, Sterloff believes the outlook for digital in Canada to be extremely bright. ‘When we went into business, we were hoping for a digital universe of 1.8 million. In fact it is going to be closer to four million by the end of this year. It’s growing faster than anybody anticipated,’ he says.

Digital set-top boxes are already coming down in price to attract more and more subscribers, and Yaffe predicts: ‘In the not too distant future TVs will be digital acceptors. You won’t need a separate box because it will be built into them.’

Paul Robertson, president of television at Toronto-based Corus Entertainment, adds: ‘As digital penetration starts to get towards 50% there will be a great desire to sell as many boxes as possible so prices will inevitably come down.’

According to Robertson, the digital era will bring the consumer a far broader range of programming in the digital age, creating more opportunities for advertisers. ‘Corus’s Scream TV, for example, is showing a lot of horror movies that have never hit TV before,’ he says.

And from his viewpoint, Mota adds: ‘There may well be a further erosion of the conventional channels as digital expands. You can’t ignore the fact that there will be many more options on the dial.’