No chance of SKY switching to mpeg4 for their own SD channels at least in the short term. The would need to replace 8million mpeg2 boxes with mpeg4 boxes (which are far more expensive) just to save a few million a year in transponder costs so it's simply uneconomical not to mention a nightmare to administer

Of course there would be no guarantee that SKY would maintain a similar bitrate for mpeg4 that it does now for mpeg2 and therefore the PQ would remain as it does now, the only reason to go to mpeg4 would be to save money.
Long term it may be possible, SKY after all have totally switched broadcast formats before and that took them two years and they had to give away most of the boxes and it took them 5 years to make a profit!
The majority of channels on Dsat (and other digital platforms) look fine on the average CRT the majority of the public use to watch television, the BBC did tests to determine how much compression they could use before people complained

The simple truth is that people are buying bigger and better displays and the broadcasts are falling behind and for economic reasons they will not be improved just to please a minority. For those that choose larger displays or flat panels (SD or HD) then HD broadcasting is the solution it'll just take time for a large FTA offering to appear so until then PAY HD is the option or stick to pre-recorded SD content which is of higher quality than broadcast.
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