[opendtv] Re: "It can't be done"
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: opendtv@xxxxxxxxxxxxx
- Date: Tue, 2 Jan 2007 09:37:00 -0500
At 4:46 PM -0800 12/29/06, Dale Kelly wrote:
Craig,
For convincing GVG to produce the 100 series systems you deserve high
praise. These products were well designed; they filled a real customer need
and were therefore hugely successful. That effort however, is not analogous
to our current discussion. GVG is a very typical relatively unregulated high
tech. manufacturer who must produce a product attractive to potential
customers and must then make a profit from that product; not an easy task
but certainly not akin to your proposal that a national and heavily
regulated industry reinvent itself.
Agreed. A company has the autonomy to re-invent itself, and the
autonomy to revert back to the old way of doing things, even after
some success in changing its underlying business model. It will
always be a blemish on what I was able to accomplish at GVG, that the
company largely abandoned the opportunity to develop new markets, and
reverted to what was comfortable. As a result they stopped growing
and have been handed from one industry conglomerate to another during
the past decade.
In this, there may be a small analogy. It take real commitment to
change to fundamentally reinvent oneself.
Clearly, getting broadcasters to commit themselves to the kind of
changes I am proposing is a very complex matter. It is made even more
difficult by the competitive dynamics of the industry. There are many
"factions" in the industry, and no clear leadership to bring about
fundamental changes. One need only look at the NAB to understand
these dynamics. The organization claims to represent all
broadcasters, however, it has been dominated historically by the
Networks and the large market station groups, who have only one goal
- to protect the Cash Cow. I have had many discussions with smaller
broadcasters about forming an industry group to represent their
interests. But this is something akin to declaring civil war.
For now the broadcast industry dynamics are such that what I am
proposing would be next to impossible. Thus I have taken the stance
that I should just bide my time and wait for the dynamics to change
in such a way that real fundamental change might be possible. It is
not clear to me whether this will happen in my lifetime, however, I
thing that as we approach the 2009 deadline, the climate for change
may improve. And AFTER the Congress critters get their hands on the
700 MHz spectrum to help balance the budget, they will still be
looking for new sources of revenue - a dying OTA broadcast industry
could be the next target.
For the past 73 years the broadcast industry has existed in a system of
dynamic, sometimes chaotic, government regulation and mandates*. That
regulatory system is partly responsible for what the industry has become, a
very profitable enterprise and coveted by many.
Profitability is related to the industry strata to which you belong.
Clearly the networks, and stations in the top 50 markets have had a
sweet deal 935-50 % profit margins for the station groups). As you
pointed out, however, life in the bottom 50 markets is tenuous at
best, and the markets that lie in-between typically have profit
margins that are more in line with expectations for other businesses
(5-10% profit margins).
Clearly, the conglomerates do not want to upset the apple cart. We
experienced this during the ACATS process, and it continues today.
But these same companies are the ones that will throw you to the
lions when they no longer need you. And that is the inflection point
I am looking for to help develop a following for a new business model
for OTA broadcasting.
A most recent mandate is the digital television conversion that has so far
cost the industry more than 1 billion dollars - and counting. In the midst
of this conversion you now suggest that the industry totally dismantle its
self and fund it's own resurrection.
Wah Wah Wah!
This is just another example of the kind of crap I am talking about.
The money spent on the DTV transition is nothing more than protection
payments to keep NTSC going. I do understand that it has a far more
dramatic impact on small market stations than the big market
stations. But the total is absurdly small, given the fact that the
industry is generating about $40 billion in revenues annually.
Here we are approaching ten years into the transition, and you are
trying to elicit sympathy because the industry has spent a bit more
than $1 billion on DTV over the past decade, while it generated
nearly $400 billion in revenues. During that same decade, the cable
industry spent well in excess of $50 billion to upgrade its
infrastructure so that it can deliver your digital signals (among
other things). Now the telcos are making similar investments. And di
I mention the cost of developing the DBS services? One satellite can
costs nearly as much as what broadcasters have spent on the DTV
transition.
Actually, I am NOT asking the industry to fund its own resurrection.
What I suggested is that the government use the proceeds from the 700
MHz auctions to pay for the broadcast assets that would be
transferred to the spectrum utility. And in return, existing
broadcasters would receive some protections related to carriage by
the new infrastructure. The ONE fundamental change that i see, is
that the networks and stations would pay for use of the new
infrastructure. But they would not need to carry expensive
transmission assets on their books, and they would not have those
huge power bills every month.
This is a much bigger issue that simply protecting a legacy business.
We are talking about a fundamental infrastructure for the 21st
century in the U.S. We are talking about an investment (like the
Interstate highway system) that will fuel innovation and growth for
decades to come.
The key is to show broadcasters how they can survive in this new
digital world, and to show the public and the politicians that there
is a better way to generate revenues from the spectrum.
Craig, your a few years too late;
they've already spent that money on the current new system.
Sorry Dale, but I still have little sympathy. The investment to date
is relatively small, and many of the assets that have been acquired
will continue to have value if used properly in the new
infrastructure.
Yes, there is a new system. Sadly, it is not going to help
broadcasters survive; the only REAL value of this new infrastructure
is that it may allow broadcasters to protect retransmission consent.
So survival will depend on getting enough revenues from the
competitors who re-transmit your signals to make up for the
continuous decline in advertising revenues.
Instead of Free TV, we will be paying billions of dollars each year
in subscriber fees, which will be collected for you by the companies
that have the real infrastructure used to deliver TV services.
I would not necessarily be opposed to your proposal that a well designed and
more efficient shared carrier system be constructed. However, the cost of
such a reinvented system must be born by those to whom it provides
advantage, i.e.: use the auction revenues.
We are in violent agreement. I would also like to tie the hands of
the politicians so that they cannot auction more spectrum in the
future. We need to manage this resource like the national forests.
Let's come up with a plan that uses the spectrum efficiently to
deliver services that virtually everyone will use, and let the
politicians get a cut of the action on an annual basis.
My point is: in your zeal to reign in what you consider to be a spectrum
wasting, overly profitable and undeserving industry, you attempt to make
your case by comparing Apples to Elephants.
The media conglomerates are the elephants. You are an apple, and
elephants really like to eat apples. If you stay the course you WILL
be eaten. Would it not be better to start working on a solution that
fundamentally changes the market dynamics so that you can survive?
Dale
* Yes, the industry itself had a hand forming these regulations, though that
was most often done to gain an advantage over others inside the industry.
The CE companies have also had their fingers in that pie; the current DTV
conversion is a prime example of something that has been to it's great
benefit.
For the record, the CE industry paid the tab for the ATSC standards
work. Those broadcasters who even bothered to be involved we mostly
concerned that the existing business model be protected. It worked
out well for both parties: broadcasters have extended the useful life
of NTSc and its inherent protections, and the CE industry was able to
use the transition to DTV to help it develop a market for larger and
more profitable HDTV displays.
Bottom line, the broadcasters who were involved really did not care
if the ATSC standard worked. The main issue was that it not cost too
much to implement, and it has not. And the CE industry was happy to
give broadcasters a standard that does not threaten the ability of
the media conglomerates and the CE industry to make us pay for "Free
TV."
Regards
Craig
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