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." ---------------------------------------------------------------------- You can UNSUBSCRIBE from the OpenDTV list in two ways: - Using the UNSUBSCRIBE command in your user configuration settings at FreeLists.org - By sending a message to: opendtv-request@xxxxxxxxxxxxx with the word unsubscribe in the subject line.