Recent months have seen a flurry of activity in the world of digital TV. Channel 4 has launched the much-hyped "adult entertainment" channel More4, ITV has added ITV4 to its portfolio, Sky has launched entertainment channel Sky Three, and Five has confirmed it is finally joining the multichannel TV fray with the launch of at least one new digital channel next year.
And they don't intend to stop there. Channel 4 is now battling head to head with Five for a newly vacant slot on Freeview, the free-to-air platform that has helped drive up digital penetration in the UK to more than 60%.
However, it's not just the major players in broadcasting who are eager to get a foothold in the digital arena. Audi recently hit the headlines by launching the Audi Channel, becoming the first advertiser in Europe to take advantage of a new "self-promotional" channel licence. Overseen by its UK advertising agency, Bartle Bogle Hegarty (BBH), it features footage from Audi-sponsored sporting events, documentaries and celebrity interviews but does not, and may not, sell anything.
As well as ad agencies, other recent new entrants to the market include independent TV production companies. RDF, most famous for its Wife Swap format, has a stake in the Baby Channel, which launched last month; Zig Zag is a part-owner in the Hotel Channel, while documentary specialist Brook Lapping has a stake in the government-backed Teachers TV and is planning to launch other "professional service" channels.
There are already more than 420 digital channels in the UK, and as many as 60 more are expected to launch in the next 12 months. The range of genres is vast and most niches are catered for - with channels for pets and publicans, gamblers and "bad movie" fans. There are even plans for an H2O channel, which yes, really is all about water.
So why are these new players interested in entering what is already a crowded and highly competitive market, and just how easy is it to get a new channel off the ground?
Future-proofing
Audi's entry into digital television is driven by the need to future-proof itself against the potential death of the 30-second ad. With terrestrial channels losing viewers year on year as audiences fragment, the ability to target the mass audiences declines. The expected widespread take-up of personal video recorders (PVRs such as Sky+) that allow viewers to skip ads altogether also means that advertisers will have to be much more targeted in their approach.
Audi believes that its new channel will provide a more direct and long-term relationship with existing and potential customers through informative, entertaining content. Its channel is about brand perception and awareness, rather than ratings and revenue.
Mark Boyd, BBH's director of content, says: "Digital technology will play a massive part in people's lives and we have to start investing in and understanding that future."
BBH claims that the Audi Channel cost just £2m to launch rather than the £20m it would have cost five years ago. This is partly because it is run via a network of freelancers, saving on staffing and building costs, and also because of technological advances.
The agency is also thinking about where else it can take the wealth of content it has created for the channel. Mobiles, broadband, digital screens at train stations - expect there to be no escape from branded content, particularly as other companies are now waking up to the opportunities post-Audi.
"We've had a lot of interest from other advertisers," says Boyd. "It's not appropriate for everyone, but brands with big ticket purchases like car and technology companies are ideal. You can imagine Sony having a channel where it can explain the functionality of its digital cameras and get people to trade up to new devices."
The Baby Channel was created after its founder, Leon Hawthorne, saw a content gap in the market and found funding from the unusual source of a production company. With eight baby magazines in the UK selling 4.5m copies between them, and with the average person spending £7,500 on a baby per year, he was amazed that there wasn't a TV channel capitalising on such a burgeoning sector.
"I took the idea to retailers and manufacturers and told them they could own and control the channel and have a more intrinsic relationship with customers. But they weren't ready for it. I think that's changing now and brands are sitting up and taking notice," he says.
Niche audience
Instead, he attracted backing from TV producer RDF, as well as shopping channel owner Simply Media TV. The finished product provides a highly targeted niche audience for advertisers and also runs three hours of shopping per day with teleshopping features, infomercials and e-commerce capability. "You can't have an advertising-led business model if you're to stand any chance of surviving," says Hawthorne, who adds that programming costs should be kept to a minimum.
Indeed, the most profitable of the recent digital TV launches are the interactive gaming and gambling channels, which make money not from ads but from premium phone lines, and the shopping and auction channels.
So are we in danger of reaching saturation point? Quite possibly. Not only are launch and running costs falling but there is no limit to the number of licences the independent regulator Ofcom can grant, so long as the founder meets some simple criteria. It issued 156 last year, compared to just 24 licences 10 years ago. Likewise, Sky is legally obliged to give anyone with a licence a space on its platform.
It seems the only way that numbers will be kept in check is when channels go out of business. Latest Ofcom figures show that 37 folded in 2004 alone, and 61 have closed so far this year. So while new launches might be being based on ever more sophisticated financial models, there will always be those who go a niche too far.
· Lisa Campbell is deputy editor of Broadcast magazine.