(H)DTV competitors

HDTV… Maybe that's it!” According to Joel Brinkley, author of “Defining Vision: The Battle for the Future of Television,” these words, spoken by John Abel in 1986, were the genesis for an idea to avert almost certain disaster for the broadcast industry. In the summer of 1986, Abel was vice president of the National Association of Broadcasters — the point man for NAB efforts to prevent the FCC from re-allocating portions of the spectrum occupied by television broadcasters for shared use by Land Mobile applications.

These broadcast and cable networks are offering HDTV programming.

In the introduction to his book, published in 1997, Brinkley writes: “Soon, widescreen digital televisions will be commonplace features in almost every home, and today's square-screen sets will seem as archaic as a record player.” He went on to predict the end of conventional broadcasting in the next decade, saying that “The entire nation will have switched to digital TV.”

Six years later, nearly 40 million homes are enjoying the benefits of digital TV. The digital compression that made it possible to deliver HDTV in a single 6MHz TV channel enabled Direct Broadcast Satellite to become a viable competitor to multichannel cable, even before Congress and the FCC officially launched the broadcaster's DTV transition in 1997. The DBS services grew quickly and now serve about 20 million U.S. homes with hundreds of channels of standard-definition digital TV and a growing number of HDTV channels.

DBS siphoned off many of the best customers from cable systems — those who subscribe to premium service tiers with the best profit margins. This, in turn, accelerated the deployment of a new digital infrastructure for cable television, as the cable monopolies scrambled to hold onto their customers. Cable now delivers digital television — including HDTV — to about 20 million U.S. homes.

Meanwhile, sales of HDTV-capable displays are beginning to take off. At NAB, the Consumer Electronics Association announced that the CE industry has shipped more than five million DTV products, which include displays with 480p or better resolution, integrated DTV receivers and digital set-top boxes. Several weeks later, the CEA announced first-quarter 2003 sales totaling 766,373 units, an 86 percent increase in units over the first quarter of 2002. Cumulative sales figure for DTV set-top boxes — sales from 1999 through March 2003 — have now reached 348,019 units. This brings ATSC-receiving products, including both integrated sets and stand-alone set-top boxes, to 633,897. The CEA release did not mention that the vast majority of these set-top boxes and many integrated receivers are HD-capable DBS receivers with ATSC tuners.

Six years into the so-called DTV transition for broadcasters, less than one percent of U.S. homes are capable of receiving DTV broadcasts. And with the May deadline passed for non-broadcast stations to begin DTV broadcasts, only about half of the nation's broadcasters are delivering DTV signals, many at reduced power levels. The notion advanced by Brinkley and the FCC that analog TV broadcasting would end this decade is now viewed as a joke.

Almost everyone agrees that John Able's “idea” turned out to be a stroke of genius. Broadcasters have not given up a single hertz of spectrum to alternate uses, despite the fact that Congress and the FCC expected to recover most of the 700MHz bands by this point in the transition. The consumer electronics industry has a new cash cow. While HDTV displays account for a relatively small percentage of unit sales for TVs, they represent the lion's share of profits. And now, there is a new battle cry in the world of multichannel television distribution: “HDTV… Maybe that's it!”

The new DTV food chain

Given the reality that the average price of a new TV is still hovering below $300, it would be easy to question the notion that HDTV would be the salvation of digital terrestrial television broadcasting (DTTB).

But HDTV is now a quantifiable success, and the quantity of HD programming is growing. There are several reasons for this “unexpected” turn of events. Perhaps most important, big-screen home theater systems are a good match for the larger homes and larger incomes of the world's largest economy. This was true even before the introduction of HDTV. Rear-screen projection TVs are a uniquely U.S. phenomenon, accounting for the majority of worldwide sales.

HDTV-ready displays — with their integrated de-interlacing circuits — do a good job of making NTSC acceptable on a big screen. Better yet, when you hook up the analog component output of a DVD player to one of these sets and a surround sound system, the home theater experience comes alive. Even without access to HDTV programming, as is the case in our home, the investment in an HD-capable display is well worth the price.

The ability to watch real HDTV programming is the icing on the cake; something that many purchasers of HD-capable displays are willing to pay a premium for, along with premium movie channels and premium sports packages.

You might say that HDTV and premium program tiers are a marriage made in the heavens, and now the earthbound competitors to DBS are jumping on the HDTV bandwagon.

This Week in Consumer Electronics recently predicted that the outcome of the ongoing battle between the digital satellite and cable multichannel TV industries could affect sales of billions of dollars' worth of products, including higher-end set-top boxes, integrated HDTV sets, HDTV monitors and other related products.

The report notes that many new HDTV set owners have come to satellite from cable, and that cable has to respond by aggressively deploying its HDTV solutions.

Multichannel TV programmers can smell the money, too. The opportunity to serve a rapidly growing niche audience, willing to pay a premium for HDTV programming, is irresistible. Hardly a week goes by without the announcement of a new HD service that will be delivered via cable and DBS. ESPN recently launched its HD sports channel, and HDNet is expanding to three channels that will be offered by both cable and DBS services.

The new DTV food chain described in the April “Download” is beginning to materialize. The major questions yet to be resolved involve how it will be packaged, what it will cost and what the broadcast networks will do to capitalize on this opportunity.

Sleight of hand?

At the moment, all eyes are focused on Washington, where the FCC was expected to complete its biennial review of ownership rules on June 2. Concerns about media consolidation are uppermost in the minds of everyone involved with mass media.

In a classic sleight of hand, while broadcasters have focused attention on the pending media consolidation rules, they are gobbling up cable networks to recapture the audience lost to program diversity. At NAB, NewsCorp announced its deal to acquire DirecTV — the most important missing piece to their global DBS ambitions.

Leading up to the FCC decision, Congressional leaders held a series of hearings on media consolidation. At one hearing, Viacom's President Mel Karmazin issued dire warnings about the future of broadcasting if the big media conglomerates are not allowed to grow. Karmazin noted that the rising cost of programming, especially rights fees that networks pay sports leagues, causes networks to lose money by putting their shows on broadcast stations instead of cable. “Sports content will be the first to go to cable,” Karmazin warned. “Then other [programming] will follow.”

Craig Birkmaier is a technology consultant at Pcube Labs, and hosts and moderates the OpenDTV Forum.

Send questions and comments to:cbirkmaier@primediabusiness.com

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