hundreds of TV broadcasters who have yet to construct their DTV transmission faciliti

[Gregg Lengling]

On October 16 the FCC issued a press release claiming that the DTV transition for broadcasters continues to move forward, noting that 1060 TV stations, representing 81 percent of all commercial stations, are currently on the air with a DTV signal. But the real purpose behind the press release — and the FCC actions it reported — was to keep pressure on the laggards; hundreds of TV broadcasters who have yet to construct their DTV transmission facilities.

The press release stated that the FCC took action regarding 141 stations filing requests for a third extension. Out of these requests, the FCC granted 104 stations an additional six months to begin broadcasting a digital signal. Seven stations were denied extensions and given letters of admonishment.

It's no secret that many broadcasters are doing everything in their power to minimize their level of commitment to, and investment in, DTV. Many have chosen the path of minimal resistance — putting a low-power DTV signal out over their city of license. There are a handful of stations in this latest group of extensions with legitimate reasons for delay; those dealing with community resistance to the proposed site of new towers and the inevitable delays brought about by the destruction of the World Trade Center in New York. In addition, some small-market stations have been granted multiple extensions based on financial hardship.

Most of the rest are traveling the path of maximum resistance. Do nothing and hope that the problem goes away. To date, none of the 71 stations that were admonished during the second round of extensions have reached the stage of getting fined. If and when the FCC should decide to take action against the most stubborn of the laggards, they may be able to tie things up in court for several more years before being forced to put their DTV channel on the air. Some may simply give up that DTV channel, if they can keep broadcasting on their analog channel.

One can hardly blame these stations, especially those in smaller markets, who face the prospect of investing as much, or more, in a DTV facility than the current valuation of their station. To be fair, DTV — at least the U.S. broadcast version — appears to be traveling an unbeaten path. About 40 percent of U.S. homes now subscribe to a digital TV service, either DBS or cable, and the number of new subscribers continues to grow. The number of homes capable of receiving terrestrial DTV broadcasts continues to stagnate below 1 percent, and most of these ATSC receivers are integrated with an HD DBS receiver package.

Meanwhile, HDTV is becoming a viable niche market for both cable and DBS, with a growing choice of content that is not available via terrestrial DTV. On Oct. 15, Cablevision dropped a mini bombshell. The company, which recently launched a satellite for a new DBS service, announced the Rainbow DBS service, which will be marketed under the VOOM brand name. The service focuses on the growing HDTV market, with 21 channels of commercial-free HDTV programming.

More than four million homes now have an HD-capable display. A recent survey by the Consumer Electronics Association found that nine million households are likely to purchase high-definition television products over the next 18 months and another 30 million consumers consider themselves likely purchasers within the next three years.

On October 28, the United States Court of Appeals for the District of Columbia upheld FCC regulations requiring television set manufacturers to install ATSC tuners in some new sets starting next summer. The court rejected arguments made by the Consumer Electronics Association (CEA), that the FCC lacked the authority to impose such a requirement and that the order would harm consumers. It is not known if the CEA will appeal the ruling, and how consumer electronics manufacturers (CE) will deal with the mandates.

A recent FCC action, embracing the agreement between the CE and cable industries for one-way digital tuners, paves the way for the CE industry to develop integrated "digital cable-ready" receivers and to enter the cable set-top box market. The agreement specifies digital I/O ports for IEEE-1394 (with 5C content protection) and DVI (a secure digital link between the receiver and display). These open up the possibility that the CE industry will focus their efforts on monitors rather than integrated receivers.

The FCC also is preparing to adopt rules for the "Broadcast Flag." The flag will signal that the broadcast content must be protected; the onus of protection will fall upon manufacturers of receivers and virtually all downstream devices that might have access to the DTV bit streams, including PCs. Forcing consumers to buy receivers they do not plan to use, and limiting the fair use rights of consumers could backfire.

The sad reality is that consumers are not traveling the path offered by broadcasters ... the unbeaten path.

Opportunity knocking?
Given current realities, the notion that small-market broadcasters might view the DTV transition as an opportunity may seem about as likely as the prospect that the analog channels will be returned in January of 2007.

For example, the Sinclair Broadcast Group, which owns or manages one of the largest groups of stations in the United States, has taken the concept of centralcasting a step further with News Central. Local newscasts are a hybrid mix of stories that originate locally and regional/national stories provided by the News Central staff in Maryland; localized weather segments also are produced at the News Central facility. This allows small-market stations to deliver a higher-quality news product while concentrating their resources locally.

Consider the strategy of another rapidly growing station group, Nexstar Broadcasting Group, headquartered in Irving, TX. Nexstar is a television broadcasting company focused exclusively on the acquisition, development and operation of television stations in medium-sized markets in the United States, primarily markets that rank from 50 to 150, as reported by A.C. Nielsen Company. The Nexstar Web site explains that they are able to acquire stations on more favorable terms than those in larger markets, that they achieve lower programming costs because "the supply of quality programming exceeds demand" in markets with only a few stations, and they employ management techniques typically found only in larger markets.

How does this translate into a DTV opportunity? This is about serving the millions of conventional TV screens found in medium and small markets. It is about creating economies of scale so that the station group can compete effectively for sources of content for a standard-definition DTV multiplex.

The big media conglomerates may use their control over distribution and their political clout to capture more of the revenues from local broadcast operations, but they are not the wellspring of TV industry innovation.

When we get off the unbeaten path of the current broadcast DTV transition, we find smaller media companies also trying to grow. Many times, these companies are limited by competition from conglomerates, with respect to their ability to gain favorable carriage on cable and DBS systems.

Medium and small-market broadcasters need to leave the unbeaten path to find this land of opportunity. Despite its obvious limitations, DTV broadcasting can provide the vehicle to transport broadcasters into a future where they have more leverage over content suppliers, not less. Where they can compete based on their knowledge of the market and the community, rather than the ratings of the network that controls them today.

What's more, broadcasters may kick up a few stones and discover that there's more to serving a market than keeping people entertained. DTV broadcasting has the potential to allow broadcasters to enter into new businesses including electronic newspapers and directory services. The opportunity — and the need — to innovate are larger in smaller markets.

All of this depends on the deployment of DTV-capable receivers. If enough broadcasters talk with one another, they might figure out that it is not difficult to create a platform for competition with cable and DBS, which have placed digital set-top boxes into more than 40 percent of U.S. homes.

The time has come for small-market broadcasters to tell the conglomerates to enjoy their journey down the unbeaten path. There is opportunity out in the digital wilderness; however, those who choose to sit on their analog assets cannot exploit it.

But there is opportunity for small and medium market stations via consolidation. Some station groups are building networks of stations in smaller markets to gain leverage in two ways. First, by using the station group's strength to negotiate better deals for syndicated programming and, second, by using technology to reduce costs, often improving the delivered product's quality.