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Special report: The state of the industry

DBS is experiencing great growth rates, cable is being upgraded at a feverish pace and digital terrestrial is still poised for tremendous growth.

Television has seen many changes since its introduction over 60 years ago: most significantly, the change from black and white to color in 1954, the proliferation of satellite and cable TV in the 1970s, and the debut of stereo television in 1981. Now the transition to digital stands as, perhaps, the most significant shift yet.

The arrival of the television brought about a paradigm shift in the lifestyles of virtually everyone that used one. With the spread of television, people could be entertained in the comfort of their own homes. People began to enjoy a “personal” connection with entertainment.

This increasingly personal TV experience led households to purchase multiple television sets. Eventually, many homes had TVs in bedrooms, playrooms and even kitchens. In 2000, not only did over 98 percent of U.S. households own TVs, but there were over 250 million TVs in the United States — almost one TV per person.

Going digital

The digital world is spreading and development is well underway for all three major TV platforms — satellite, cable and terrestrial. At this time, Direct Broadcast Satellite (DBS) is experiencing the greatest growth rates; cable systems are being upgraded at a feverish pace, often sending the multiple system operators (MSOs) into tremendous debt; and digital terrestrial, which has been thrown off by delays in many areas, is still poised for tremendous growth, even though it might be another two to four years before it begins to start catching up with cable and satellite.

Rollouts of each platform vary from country to country and are based in large part on what that country deems important for its TV viewing population. For example, the UK has over 55 percent of its TV viewers receiving terrestrial signals, and therefore has made a strong commitment to digital terrestrial television (DTTV). To be sure, they also have made strides in digital satellite, led by BskyB, and, to a lesser extent, digital cable, led by NTL and Telewest: but they have by far the most impressive commitment to DTTV.

Digital cable has quietly become a very common offering. Although it will take time for people to begin to take advantage of the service, MSOs in the United States have already invested over $40 billion in order to upgrade their networks as quickly as possible. Even European MSOs, who have historically not invested as heavily in their networks, are making sure that they capitalize on this opportunity.

DBS was actually the first platform to offer digital service. As such, it is by far the most popular digital platform at this time. DBS will continue its impressive rollout, as well as its rapid take-rate, but will eventually start to level off. Nevertheless, satellite, whether in analog or digital form, has always been in third place behind the terrestrial and cable platforms and will stay there for the foreseeable future.

Direct Broadcast Satellite (DBS)

DBS has grown significantly due to its role as a pioneer in many new services. DBS providers have begun offering channels in HDTV, as well as a wide assortment of interactive TV (ITV) services. Although ITV is largely being offered in Europe, operators in the United States and other regions who do not yet have interactive services are planning on offering them soon as well.

Satellite has carved out a significant position for itself over the past 10 years and has been demonstrating phenomenal growth around the world. Once considered simply an alternative to cable, satellite is now proving that it can give cable a run for its money, which has caused many cable MSOs to sit up and take notice. This has led the cable industry to invest heavily in future services such as interactive and video-on-demand.

Digital cable

The rollout of digital cable has been rapid in certain pockets of the world, but overall it will take some time. It is directly linked to the upgrade of cable networks to support data over cable service. In other words, if a neighborhood or region has been upgraded to hybrid fiber coax (HFC), the network can support data over cable as well as digital cable services.

Additionally, there is a drive within the cable industry to move toward a retail-market channel of set-top boxes, thereby moving the burden of STB financing to the consumer and allowing the MSOs to ramp up their rollouts. In the United States, this is happening due to the FCC pushing the market in that direction rather than any voluntary effort on the part of the industry itself. Regardless of the influence of the FCC, service operators and consumers would like to see much more competition in the equipment arena, thereby further reducing costs to the end user.

Terrestrial DTV

There has been a drive to re-evaluate the standard chosen by the ATSC for transmitting terrestrial DTV signals in the United States. The ATSC has chosen 8VSB standard, which was developed by Zenith, but pressure has been mounting to consider the use of COFDM, which has been chosen by most other countries that are developing terrestrial DTV systems. There was a proposal brought to the FCC in November 1999 to open this decision for discussion, but it was rejected in February 2000. More recently, in January 2001, there was additional discussion over another round of tests conducted by the MSTV/NAB consortium. These tests generated worldwide furor due to apparent inconsistencies in testing procedure and “improper” use of a digital receiver. (The company — Broadcast Technology Ltd — claims that the receiver used in the tests was really a transmission monitor and could never perform well under those conditions.)

The FCC claims that 8VSB is the appropriate choice for the United States, despite the successes that COFDM has already demonstrated in Europe. 8VSB detractors point to studies that show COFDM to be a more robust modulation scheme. Some have asked the FCC to let each broadcaster choose which modulation to use, but the FCC has rejected this suggestion as well.

Although there are some that are crying “foul play” with regard to the decision, and still others extolling the virtues of COFDM or — more accurately, “not 8VSB” — the reality is that the FCC has made it clear that they have no intention of reopening the standard in any way. Therefore, it is time for the industry, and industry vendors, to decide how they see the future of broadcasting. Will terrestrial broadcasting be a legitimate contender in the struggle for viewers, or will it gradually dissolve into a niche platform as cable and satellite eat its lunch? Only time will tell, but if Congress keeps turning the screws on the DTV transition, the broadcasters are going to have to work even harder to avoid getting squeezed out of the market altogether.

Joshua Wise is a digital media analyst with Allied Business Intelligence, Inc.