[opendtv] News: Local Broadcasters Offer Cheaper Premium Services
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Mon, 3 May 2004 22:51:38 -0400
http://www.nytimes.com/2004/05/03/business/media/03band.html?th
May 3, 2004
Local Broadcasters Offer Cheaper Premium Services By IAN AUSTEN
In an age when cable and satellite television companies offer
channels by the hundreds, the service that Aaron White receives at
his home in Sandy, Utah, seems almost quaint. For $20 a month, Mr.
White has a dozen specialty channels, including ESPN and the
Discovery Channel, along with all his local high-definition stations
for just $20 a month.
What is quainter still is that Mr. White does not have either cable
or satellite service: he and other customers in the Salt Lake City
area receive premium channels through his own antenna and a set-top
box he bought at Wal-Mart.
"I was skeptical at first," said Mr. White, a sales manager for
American Express. "But the picture's fantastic."
The service he receives - premium channels that are ordinarily found
only on relatively expensive cable or satellite services - is the
result of government largesse. In the late 1990's, broadcasters
throughout the country were given large chunks of the airwaves at no
cost with the understanding that they would provide free digital
signals as part of the government's push for high-definition
television. But because of improvements in digital signal
compression, it no longer takes nearly as much bandwidth to broadcast
digital television, so the broadcasters are left with plenty of
bandwidth to use, and profit from, however they see fit.
In Salt Lake City, U.S. Digital Television, a new service, is using
surplus bandwidth from local broadcasters in three cities to compete
for revenue now collected by cable and satellite services.
Broadcasting in digital signals means that U.S. Digital can offer
many viewers a high-quality picture over the air, eliminating the
need for cable or satellite. And the company is trying to offer other
attractions, like ESPN and MTV.
Steven R. Lindsley, chairman and chief executive of U.S. Digital , is
not modest in his predictions about the potential for digital
leftovers, which he says could redraw the battle lines in the
competition between broadcasters and cable. "We think there's going
to be a major shift in the media landscape and it will be a shift in
power back in the broadcasters' favor," he said.
Mr. Lindsley had the idea for the company while he was head of the
KSL-TV Broadcast Group in Salt Lake City, which included the NBC
affiliate there. For inspiration, he said, he looked to the business
model of low-cost air carriers like JetBlue rather than to other
broadcasters.
"There are more value-driven viewers than there are channel-driven
viewers," he said. "I don't think I'm a technology innovator. I think
I'm a low-cost alternative to cable."
Because U.S. Digital has been operating in Salt Lake City, Las Vegas
and Albuquerque for a relatively short time, its subscriber base is
still small, although the company declined to provide exact figures.
Mr. Lindsley said he had agreements with broadcasters that should
allow operations to start in about 30 cities by the end of the year
and planned to expand the service nationally, taking on cable and
satellite operators through the country. But there is nothing
stopping any of the nation's broadcasters, including big local
stations in New York and Los Angeles, from doing likewise.
Other stations are finding different ways to capitalize on leftover
bandwidth. Some have added channels that broadcast local news, sports
or weather. PBS is providing new channels including a PBS Kids
Channel for its members to broadcast.
But the most ambitious plans, like those of U.S. Digital and SmartTV,
a service announced in February by All TV Connect of Indianapolis,
allow local television stations to assume cable's role of packaging
and selling several premium channels to viewers. Emmis
Communications, also based in Indianapolis, which owns 16 stations,
announced a new service last month that will use its surplus
bandwidth to offer high-definition television and some 30 specialty
channels for about $25 a month, with the purchase of a $100 set-top
box. Jeffrey H. Smulyan, the chief executive of Emmis, named 11
broadcasters who he said supported the plan, including Clear Channel,
E. W. Scripps and Media General.
And there are now premium services springing up that want to sell
directly to these broadcasters rather than through cable operators.
In June, AgU Entertainment of Miami will introduce a music video
channel aimed at viewers over 30 that is being created by Les
Garland, a co-founder of MTV.
Such uses are not without critics. The consumer electronics
companies, which want to sell expensive components and television
sets, want the spectrum used for high-definition broadcasts, not
low-cost alternatives to cable. At the National Association of
Broadcasters' convention in April, Gary Shapiro, head of the Consumer
Electronics Association, called these services "technological
mirages."
The Media Access Project, a public interest law firm in Washington,
was among those who were critical of the handover of bandwidth.
"It doesn't make me jump for joy," Andrew Jay Schwartzman, the
group's president, said of U.S. Digital and other plans to exploit
extra bandwidth. "But at least we were able to ensure in that process
that the broadcasters would be forced to pay a spectrum fee." Mr.
Schwartzman acknowledged that the new services might potentially
benefit consumers by offering competition to cable.
No single broadcaster in most cities has enough surplus bandwidth to
distribute the entire U.S. Digital package. The company uses
technology that allows it to divide its signal among several
transmission towers. As a result, Mr. Lindsley must persuade four
broadcasters in any market to pool their spare bandwidth.
Nationally, 1,186 stations offer some kind of digital signal,
according to the National Association of Broadcasters. (When 85
percent of the national audience can receive digital television, the
broadcasters will have to hand their analog spectrum back to the
government, but that will still leave plenty of room for these new
services.)
During the early conversion to digital, there was concern among
broadcasters about what they could do and not do with their new
transmission powers.
But a spokeswoman for the Federal Communications Commission said
there were no restrictions on what television stations do with
leftover spectrum, provided they met their minimum regulatory
commitment. She defined that as offering one free over-the-air
digital channel "comparable in quality to analog." Broadcasters must
also pay 5 percent of gross revenue from any new businesses to
Washington.
Mr. Lindsley said that U.S. Digital's most important component was
not technology but a business plan that hinged on sharing revenue
with broadcasters and courting them as investors. "We believe that a
united broadcast industry can not only break into the pay TV business
but do it in a major way," he said.
Of course, the nature of U.S. Digital technology also means that Mr.
Lindsley's project will work only if he succeeds in getting local
broadcasters, who can be contentious competitors, to form alliances.
Mr. White in Sandy, Utah, was attracted to the service in December
when he and his wife bought a high-definition television set. At the
time, they subscribed to a basic cable package from Comcast for about
$18 a month, he said. But getting high-definition channels from
Comcast would have substantially increased that. For about $2 more,
U.S. Digital not only gives Mr. White high-definition broadcasts, but
he also receives more specialty channels than he did from Comcast.
"I'm very glad we switched," he said.
Publicly, at least, the cable industry is diplomatic in welcoming the
challenge from local broadcasters. "This is just another example that
the video market offers a full range of alternatives to consumers
nationwide," Brian Dietz, a spokesman for the National Cable and
Telecommunications Association, said.
All TV Connect's SmartTV is more interested in expanding local
station operations into a channel package than in creating a
full-size rival to cable. "It's not a whole lot different than a
syndicator who brings Oprah to a market," said Jon Findley, the
company's vice president for development. "That's a model
broadcasters are used to and comfortable with."
Its plan offers stations a variety of channels they can mix with
their own multichannel programming, allowing local broadcasters to
sell directly to their subscribers, allowing an end run around the
cable companies.
Mike Ruggiero, a broadcasting consultant who founded All TV Connect,
became involved with AgU Entertainment's new music video channel.
When the channel was created by Mr. Garland, AgU was thinking about
traditional cable and satellite distribution. Instead, Mr. Garland
brought in Mr. Ruggiero, who persuaded AgU to make deals with local
broadcasters to carry the Tube Music Network on their digital
signals. When the channel starts broadcasting, both Mr. Garland and
Mr. Ruggiero anticipate that cable companies will pluck the Tube from
the airwaves and include it in their lineups.
Mr. Garland, who started an urban music video channel after leaving
MTV, said dealing directly with broadcasters instead of cable
operators was a welcome change. "These guys have been very
receptive," he said. "They've got 19 megabits of bandwidth and
nothing to put on it."
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