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05.04.2004
Originally featured on BroadcastEngineering.com
Over-the-air multichannel plan promises to upset distribution apple cart

A plan put forward at NAB2004 in Las Vegas calls for broadcasters to form a nationwide consortium to pool their multicast channel bandwidth to offer a viable competitor to the cable TV industry in delivering multichannel television programming.

As outlined by Emmis Communications Chairman and CEO Jeff Smulyan, the dramatic proposal is a way for broadcasters to reclaim lost revenue and re-establish a relationship with audiences that has been severed.

Speaking at an April 20 news conference, Smulyan reminded broadcasters of the programming resources offered by their networks. “If you notice, the cable networks largely are supplied by broadcasters,” he said. “Our four networks provide most of the most compelling cable networks. So it’s a natural point of marrying between the networks and their affiliates.

“On the NBC affiliate in Wichita and on channel 3, I provide NBC in high definition, but on channel 3A there’s no reason I can’t provide Bravo, or CNBC on 3B. And if I’m the FOX affiliate in New Orleans on channel 8, I provide FOX in high definition, but on 8A I provide FOX News, and on 8B I provide FOX Sports and 8C, FX. It’s a natural chance for the networks to distribute product. Now, legally we have a right to the product so no matter where the source of the cable network, we have the right to get it.”

As envisioned by Smulyan, consumers would purchase a set-top box for $99 and pay a $25 monthly service charge for 30 of the most popular cable channels that would be distributed on broadcasters’ multicast channels. Broadcasters would continue to offer free over-the-air television – in high definition -- on their primary channel, which any one could receive without subscribing to the new service.

“The point is it gives another opportunity for the over-the-air networks to re-establish relationships with their affiliates in each market in America,” he said. “It marries the networks to the broadcasters. The broadcasters… will own the equity in this system. They will be paid a retransmission fee. It’s built into our model.

“They’ll also be a proportionate owner of the spectrum. So they will share in all parts of this. Our goal is that 100 percent of this business is owned by 100 percent of the broadcasters in this industry…

“They come in and pool spectrum into the consortium and get this to the public, and the public has the chance to get low-cost multichannel video at a fraction of the cost of cable.”

Among the broadcasters present at the news conference in support of Smulyan’s proposal were Barrington Broadcasting, Citadel Communications, Clear Channel Communications, E.W. Scripps, Fisher Broadcasting, Media General, Meredith, Nexstar Broadcasting Group, Prime Cities Broadcasting, Raycom Media and Sunbelt Communications.

“The key to this is that technology has shifted,” Smulyan explained. “Today, we have the ability to do what the cable companies do. We can provide multiple channels in high definition. Compression is dramatically improving. Today, we can provide 30 to 50 cable channels over the seven or eight stations in a market. We believe that in a few years we can probably go over 100 or 150 channels as compression technology advances.”

According to Smulyan, two separate groups have already studied market acceptance of the plan and found that 27 percent of the public expressed strong interest in the proposition if they could purchase a set-top box for $99. If the industry provided the box for free, acceptance ran at 49 percent.

“Now, I am sure everyone in the room says 49 percent, you’re not really going to get 50 million American homes,” he said. “This business model works very, very well at under 10 percent. We believe that this business model will radically change – that consumer preference will take it well beyond 15 percent.”

“In terms of revenue, the plan is a winner,” he said. “We believe it is reasonable to assume that we will generate revenue of between $4 billion and $6 billion within five years, with margins ranging from the high teens to the mid-20s.

“This is not a situation where we require massive amounts of capital. We don’t have to launch a satellite for $4 billion. We don’t have to spend $80 billion on broadband distribution because the reality is we’ve already paid for our distribution mechanism. Our industry has paid $4 billion in building out the digital transmission facility. It’s already done. Now we have a chance to use that infrastructure to deliver our signals of great value for our audiences.”

Smulyan estimated the capital cost required would be between $400,000 and $500,000 for every broadcaster.

To listen to the news conference in its entirety, please visit www.visualwebcaster.com/event.asp?id=22141..

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