TV goes online under Canvas

A consortium hoping to bring internet broadcasting to living rooms faces a crucial winter with challenges from regulators and rivals, says Nick Clark

Crunch time is approaching for Project Canvas, the service designed to bring catch-up television from the internet into the nation's living rooms. The joint venture, combining the BBC, ITV, BT and the recent addition of Five, hopes to have its first set-top boxes on sale by Christmas next year, but it faces opposition from rival broadcasters and could still be scuppered by industry regulators.

The next crucial date for the project is 1 September, when the BBC Trust closes its second consultation period and prepares to pass initial judgement on the viability of the scheme shortly afterwards. The trust will be the first regulatory hurdle, but if it passes, it is unlikely to be the last.

Project Canvas was devised to agree a common standard for the free delivery of digital and online programmes. Viewers will be able to receive the service from a set-top box, using either a digital aerial through Freeview or a satellite dish with Freesat. A "hybrid" box would include a broadband connection to offer on-demand internet TV.

Dan Cryan, an analyst at the broadcasting trade journal Screen Digest, said: "This is Freeview-Plus-Plus. At its root is the Freeview box plus iPlayer, ITV Player and Demand Five. In theory, it will have the ability to do paid video-on-demand as well as adding pay-TV's subscription channels on top. There is an attempt to facilitate every broadcasting business model."

The boxes are expected to be ready for high-definition broadcasts and may include personal video recording systems similar to those found in the Sky+ and Virgin V+ boxes.

Canvas was hatched by BBC executives last year after the trust called for the corporation to increase its help for commercial public service broadcasters through partnerships. It was the first of the proposals to come through after the challenge.

Richard Lindsay-Davies, director general of the industry body Digital TV Group (DTG), said: "There are a few hybrid systems out there but, with these backers, Canvas could become a trusted brand for consumers. It could be the service your Mum and Dad understand."

Pay-TV broadcasters say there is a commercial opportunity for them to offer their output through Canvas boxes, and at least one is in talks with the consortium about joining the scheme. "There is no issue with creating open standards – that is a good idea," one said. The venture partners have been discussing technical development for months, and their requirements will be handed to the DTG, whose members will start working on hardware next month. "It is a major development with the potential for a major impact on consumers," Mr Lindsay-Davies added.

The BBC expects to spend about £16.6m on Project Canvas over the next five years. The set-top boxes will cost up to £200 when they launch next year. The BBC Trust began public consultation about the project in February to see if Project Canvas is in the interests of licence fee-payers. Diane Coyle, one of the trustees, said at the time: "We will be scrutinising it to ensure the best possible outcome." The BBC's governors have to judge the potential for financial, operational or reputational risk to the corporation, but the contentious issue for its rivals is the market impact assessment (see below). They want the broadcasting regulator Ofcom to carry out a separate investigation.

The trust has now entered its second consultation period. The first ended with industry associations, rival broadcasters and even Ofcom demanding more information from the BBC. A response was published on 24 July.

Stakeholders have until 1 September to comment. Many have criticised this deadline as being too soon to submit an adequate response, and Sky has already said it is likely to miss the deadline. One pay-TV insider said: "[The response] is a logistical challenge. We have to respond to an 80-page document in just five weeks. This is unrealistic, especially as it is the holiday season."

Another said: "The deadline is just ridiculous and there is still not the full level of disclosure we would like."

The timing is just one concern that the pay-TV companies have about Canvas, although most admit it is a good idea "in principle". A spokesman for Virgin Media said: "As it stands, the Canvas proposal would give the BBC and its partners significant control over a new TV platform, and this will have considerable implications for the market."

Pay-TV broadcasters have also complained about the BBC's access to and control of programme content. In its proposal, the corporation said there would be "clear editorial standards" over the content that would and would not be allowed, although it has yet to say what those standards are.

Some industry insiders have criticised Canvas for pre-empting market competition. "The BBC should get involved when there is a market failure; hybrid is still embryonic," said one. Neither do they like the BBC moving from programme-making to controlling a distribution platform. The source added: "Canvas is creating a gatekeeper who could control what you can and cannot watch."

The BBC, though, remains confident. Last month it said there was "a strong and growing endorsement" for Canvas, adding: "If implemented correctly, a broadband-connected TV platform, open to all content and service providers and application developers, is essential for UK consumers".

Trust under fire: BBC body hits back

The BBC Trust, the governing body reviewing the corporation's involvement in Project Canvas, yesterday defended itself against claims by a pay-TV operator that it was unsuitable for the task.

A spokesman for the trust, chaired by Sir Michael Lyons, left, said its "assessment of Canvas is a rigorous process which gives ample opportunity for comment and expression of views". An insider added: "We have thrown out BBC projects before if we felt they weren't appropriate. Our processes are robust."

The trust was responding to BSkyB, whose director of corporate affairs, Graham McWilliam, said: "The combination of a wholly unrealistic timeframe for responses, along with a failure to seek an independent and comprehensive market impact assessment from Ofcom, demonstrates a disregard for the principles of good regulation."

He said that the trust's actions would only "undermine further industry confidence in its ability and inclination to act as a genuinely independent regulator of the BBC".

The trust is unlikely to call in Ofcom because it is already carrying out a market impact assessment. "Ofcom's involvement would give everyone a piece of mind that the process has been totally independent," a source said.

Dan Cryan, of Screen Digest, believes that even if the trust approves Project Canvas, Ofcom or the competition authorities will become involved later in the process. "This won't be the end of the game," he said.