U.S. consumers are embracing digital television — but will broadcasters be left holding the old analog bag? Broadcasters in the United States, and around the world for that matter, face an uncertain future. The industry is facing economic contraction with root causes that extend well beyond the current global economic recession.
More than 25 percent of U.S. homes have upgraded to the multichannel DTV services offered by cable and DBS. Yet only 1 percent of U.S. homes have purchased an HDTV-capable digital television display, and only a tiny fraction of those have invested in a receiver for DTV broadcasts.
And while there are widespread discussions about emerging business models for DTV broadcasting, broadcasters appear to be hunkering down to protect the lucrative analog NTSC franchise. At the same time, via the NAB and other lobbying organizations, they are pressuring the FCC and Congress for mandates to force DTV upon competitors and consumers, who may not care whether free-to-air broadcasting survives.
More than 85 percent of U.S. homes now subscribe to a multichannel TV service — some analysts project that this number will grow to 90 percent within three years.
Given these realities, who could blame broadcasters for wanting to gaze into the proverbial crystal ball to see what the future holds?
As we look to the future, we have assembled a collection of visions from some of the people who are trying to build the new infrastructure for digital television. Gary Shapiro and Mark Cuban provide a domestic perspective on the DTV transition, while Andy Ioannou and Robert Henderson add a global perspective from the UK, considered by some analysts to be leading the transition to DTV.
This author brings more than a decade of experience gazing into the crystal ball. Over that decade one thing has become crystal clear: There are no technical barriers to this transition. Anyone with enough time to analyze the evolution of digital technology can predict with a fair degree of accuracy how technology will influence the design and evolution of the convergent digital information infrastructure. Anyone can see the rapid growth of the competitive digital infrastructures that are replacing analog mass media.
The barriers to the DTV transition are political and competitive. They are wrapped up in decades of political gerrymandering with the communications industries, outdated communication and copyright law, layers of bureaucratic regulation, and the influence of some of the most powerful lobbying organizations in Washington. Perhaps the most daunting challenge, however, is that broadcasters, having lived in a protected world for decades, appear to lack the desire to compete.
This sentiment was echoed recently in comments solicited on the third anniversary of the DTV transition at www.ilovehdtv.com/anniversary.html. “One thing that has been missing is excitement from most of the broadcasters,” stated Mark Richer, executive director of the Advanced Television Systems Committee. According to him, broadcasters need to seize the opportunity presented by digital, whatever its problems, because “there is absolutely no future in analog. You can't be an LP record in a CD world. You can't even be a VHS cassette in a DVD world.”
One can hardly blame broadcasters for their complacency. Profit margins in the top 25 markets typically exceed 25 percent to 30 percent. Unfortunately, in smaller markets profit margins are typically in single digits, and many have taken a big hit because of the slump in the ad market, reductions in affiliate compensation and declining ratings. Now they are faced with major capital investments to broadcast DTV next year.
The specter of massive consolidation is rearing its ugly head, as the FCC and the Federal Appeals courts prepare to deal with the network ownership caps that currently limit network/group ownership to stations that serve 35 percent of U.S. homes. At the same time, with centralcasting it is easy to extrapolate a shift that has given a new face to regional broadcast centers operating out of the nation's top 25-50 markets. “Local stations” in smaller markets may become little more than an automated satellite operation with a small sales staff and production/news operation.
There is, however, an alternative, as difficult as it might be for broadcasters to see. The technology exists for free-to-air broadcasting to compete effectively with cable and DBS.
Creating “open” local markets
There is tremendous irony in the fact that most U.S. households pay for advertiser-supported TV. I pay Cox Cable approximately $35 per month for 60 analog TV channels, virtually all of which are advertiser supported.
Cox Cable has a local Gainesville studio and an operations center with a server that inserts commercials into 39 of the channels they deliver. What would happen if the terrestrial broadcast spectrum were used to deliver 60 (or more) channels of advertiser-supported programming in the free-and-clear?
This could well be the future of DTV, if broadcasters worked together to field a competitive multichannel service. But it would require a major shift in the currently proposed DTV business model, along with updated technical standards for a platform that would support both free and premium television and data services.
What would be needed to bring this vision to fruition?
Enhanced spectral efficiency
Single-frequency networks would be required to improve spectral efficiency, allowing operation at lower power levels and on-channel repeaters. These networks would also enable mobile and portable reception. It is important to keep in mind that this is unique to DTV broadcasting — cable and DBS require “fixed” receivers.
A common transmission infrastructure
Rather than licensing individual stations, it would be preferable to operate the transmission infrastructure as a utility, responsible for building and maintaining the networks. Regional operation would permit cost shifting so that profits from the large markets could be used to build infrastructure in the smaller, less profitable markets. The utilities would create an open market for bits; legacy broadcasters would have guaranteed access, but the markets would be open to new entrants. Rather than auctioning the spectrum, the government would license the utilities and share in the profits after the infrastructure is built out. Many existing broadcast facilities could become part of this infrastructure; transmission assets would be transferred to the utility in return for credits for the delivery of bits.
A common platform and service infrastructure
As is the case with cable and DBS today, a common infrastructure for conditional access, billing and customer service would be required. This overhead would naturally be assumed by the transmission utility. Likewise, they would handle the management of bit feeding the network, so that the same operational economies of scale enjoyed by cable and DBS could be leveraged.
A common consumer platform
This platform would leapfrog existing DTV standards, utilizing next-generation compression and interactive media technologies. The platform would support interactive services and the delivery of both SDTV and HDTV content at significantly lower bit rates. Most importantly, it would include local cache storage. Via local caching a variety of information-on-demand services would be enabled, including news, weather and sports on demand, and a wide range of directory services. Off-hours would be used to pre-load caches with services including premium programs and movies that would be available on demand (cached VOD).
Local niche programming
Existing broadcasters would become local content brands, and would create the services that drive local commerce.
Recently Echostar announced that it would acquire DirecTV and other holdings of GM Hughes, merging DirecTV and Dish into a single service. The announcement created an immediate uproar about decreased competition, most of which was instigated by the cable industry and its supporters. They understand that the merged companies will be in a far better position to compete. Concerns were also expressed about the creation of a new monopoly for multichannel TV services in rural markets. But the growth of DBS must come from head-to-head competition with cable in the larger urban markets; rural customers have little to fear if there is effective competition.
What better way to create competition than for broadcasters to field a viable competitive offering that would give consumers a third choice?
That's an idea with a future!
Craig Birkmaier is a technology consultant at Pcube Labs, and hosts and moderates the Open DTV Forum.