Policy

Pulling Back From the Digital Cliff

8/03/2007 8:06 PM Eastern

If today were Feb. 18, 2009, Tom Gleason Jr. wouldn’t be able to deliver the signal of an ABC Television Network affiliate to his cable-television subscribers in Dexter, Mo., or deliver the Fox affiliate’s signal from Evansville, Ind., to his customers in Madisonville, Ky., 40 miles away.

“I can’t get a smell of their digital signal,” he said at The Independent Show, an annual convocation of hundreds of small and midsized cable operators.

That is an effect that has come to be called the “digital cliff.” Yes, broadcasters may be sending out their signals as digits, like the Federal Communications Commission mandates for Feb. 17, 2009, and thereafter.

But that doesn’t mean the digital signals will reach the antennas of Gleason’s NewWave Communications, like the old analog waves did.

Perhaps as many as one out of every four local broadcast stations will not be able to reach all the households that they do today, because their digital signals — at least right now — do not travel as far as their traditional analog ones, according to one estimate attributed by independent operators to the Federal Communications Commission. And if those digital signals don’t reach operators like Tom Gleason Jr., they can’t be delivered to households in their service areas.

UNRESOLVED PROBLEM

It’s one of the conundra that remain unresolved, five months away from the appearance of the first tangible sign to average Americans that TV as they know it is about to change, irrevocably. On Jan. 1, the National Telecommunications and Information Administration will make the first set of federal certificates available that gives $40 subsidies to households that don’t want to give up their analog TV sets when the transition occurs. Those $40 coupons will help pay for boxes to attach to those sets, which will convert the new digital signals back into analog ones that can show up on the screens of otherwise obsolete sets.

The Consumer Electronics Association, which represents TV makers, estimates that 36.7 million over the air TV sets, in 22 million to 25 million households, will need converters.

But the National Cable Television Cooperative, which puts on The Independent Show along with the American Cable Association, said that is vastly undercounting. The number of analog sets that could be rendered unusable after the changeover is 250 million, said NCTC chief Jeff Abbas. The larger count includes all households in the country, not just those that rely solely on over the air signals for their TV reception. And the bigger count includes sets not attached to cable or set-top boxes that are in bedrooms, bonus rooms, kitchens and other places in the home.

There is a silver lining for operators, according to ACA chairman Patrick Knorr and Bob Gessner, president of Massillon Cable in Northeast Ohio and chairman of the cooperative. The difficulties ahead mean that broadcasters need cable operators more than they have in the past, if they intend to keep their audiences — and the rates they charge for advertising to them — intact. The operators hope to use the leverage to keep their costs for broadcasters’ programming down, for years after the transition is finished.

SOURCE: Saveoursets.com
TV set owner gets $40 coupon from National Telecommunications and Information Administration, to help with purchase of box that converts digital TV signals back to analog signals.
TV set owner brings that coupon to local cable operator.
Operator hooks up all the TVs in the set owner’s house to cable, for free.
Operator provides the primary signals of all local TV stations to a new house for free, for seven years. (Existing customer gets all sets in home hooked up to the cable system.)
Local TV stations forgo any charges for the retransmission of their digital signals, for a period of seven years.
Cable operator returns the coupon to NTIA.
The coupon is redistributed, or the $40 is kept by the federal government.

SOURCES OF POWER

The source of that leverage is not limited to cable operators’ ability to help broadcasters maintain their existing audiences, Gessner and Knorr said, although that’s fundamental.

The leverage also extends to feet on the street, technical expertise, relationships with viewing households that already exist — and, ultimately, being the only set of distributors who, under certain circumstances, can allow all 250 million sets to remain usable.

For instance, a widespread fear among small operators is that they will get blamed for any problems that arise when broadcasters switch over to digits — whether or not they have any control over the signal, its reception and its redistribution.

But Gessner maintained that operators can take that prospect and turn it around, into an opportunity to hand-hold television viewers through the transition. In effect, cable operators can be their local community’s version of Best Buy’s Geek Squad, he said — resolving problems not just with existing customers, but potential new ones, as well.

That’s part of maintaining what Gessner calls the “social contract” that has existed since the start of television manufacturing and viewing. The contract: you get to watch TV on your existing set until the day it dies. Physically, not by government order.

To that end, Gessner has launched a program aimed at establishing a new compact with broadcasters that, in his view, will save that pending landfill of 250 million obsolete machines. And keep cable companies as the primary conduits for getting the broadcasters’ digital signals into all those television sets.

His S.O.S. plan — for “Save Our Sets” (www.saveoursets.com) — calls for broadcasters to forego any charges to cable operators for retransmitting their digital signal to households in their service areas for a period of seven years. In return, for the same seven-year period, operators would hook up all the TVs in a customer’s household for free and provide the primary signal of every local TV station to that customer, for free. Broadcasters’ secondary digital signals would be delivered only to digital TV sets and on digital tiers of programming.

Retransmission fees have become a huge bone of contention between broadcasters and cable operators in recent years. CBS Corp. CEO Les Moonves in particular has pushed for payments on the order of 50 cents a month, per subscriber, for the right to carry his Tiffany Network’s series CSI: Crime Scene Investigation and other programming.

There is no public record of how much small cable operators pay broadcasters to retransmit local TV stations. But they are much more prone to having to pay the fees when negotiating carriage contracts.

With 3,000 or 5,000 subscribers, small operators don’t have the same clout as a Comcast or Cablevision Systems or Time Warner Cable, which may have 1 million or more subscribers in a given market. That means they’re more likely to pay a rate like Moonves’ 50 cents per subscriber per month for each local TV station. Avoiding charges anywhere from $4 to $8 a month to keep carrying popular broadcast networks is what Gessner hopes to avoid with his S.O.S. plan.

There is one big hitch to the plan: Absent new legislation, there is no law that says broadcasters have to go along with the compact. They are free to bargain, one by one, with each operator for each signal.

To be workable, the plan needs legislative backing, Knorr acknowledged. But he did not commit the ACA to a lobbying campaign in Washington, D.C., on its behalf or any other specific plan to advance the small operators’ interests.

“There are several proposals that we are looking at as an organization to work on behind the scenes,” Knorr said. “But this is certainly one that is very creative and is getting some traction.”

Two independent operators, Comporium Communications of Rock Hill, S.C., and Millennium Digital Media of St. Louis, have said they back the S.O.S. plan. But some operators have expressed concerns about it, namely the cost and maintenance of hooking up non-paying customers, according to Knorr.

“For some operators, this can be a very elegant and good solution,” Knorr said. “But some operators are also concerned about, there’s a lot of expense involved in supporting a connection. I think some operators are still concerned about that equation.”

There may not be a lot of time, however, for the operators to reach a consensus on the right way to approach the transition and gain the most leverage.

Gessner was quick to point out that the window of opportunity will begin to close within 10 to 12 weeks, if this is not acted on immediately. The plan is predicated on being in place when consumers start receiving the $40 converter-box coupons on Jan. 1. Under the plan, over-the-air consumers would be able to turn those coupons in to their local cable operator to get continued service to their local TV stations on their existing sets. The operator would turn on cable service for free, then return the coupons to the government to be redistributed.

SOURCES: Library of Congress, American Cable Association
• Allows the importation of distant TV signals into markets that cross state lines.
• Importing limited to signals in “adjacent markets.”
• Definition in the bill: “any designated market area adjacent to, and at least partially in the same State as, the designated market area in which the station is located.’’
• Appears to apply to 98 markets across the country.

MORE HITCHES

There is another hitch. To be able to reach all those TVs sitting inertly around the house, the cable operator would need to convert all the signals the broadcasters send them in digits, back into analog waves.

Ultimately, a cable operator could be delivering three versions of a local broadcaster’s signal, Gessner said: high-definition, standard-definition and analog. That would happen by converting the HDTV signal into the two other formats.

And once done, a cable system would have greater ability than either broadcasters or satellite services to reach those millions of otherwise outdated TV sets, because cable operators would be the only source of an analog signal in a market.

But so far, conversion is not in the cards. Under the FCC’s proposed regime for the digital transition, cable operators must carry all the “content bits” of broadcasters’ local signals.

If a broadcaster chooses to send out its digital signal in high definition, Knorr suggested, there’s little question that the FCC would regard any reformatting of that picture into a standard-definition picture, even if digitally delivered, as a “material degradation” of the signal.

That could be the case if the digital picture were transformed into the older, nondigital format, as well. Even if, as Dom Stasi, chief technology officer of on-demand services firm TVN Entertainment said, the move was portrayed as an “analog enhancement” of the picture.

This differs from the way cable systems handle digits received from other programmers. Today, they receive dozens of cable networks in a digitally compressed format, which they convert to analog prior to sending them to TVs that can’t handle digits.

All of which makes it unclear that independent operators like Gleason can legally translate the digital signals into pictures that can be put up on the screens of those scores of millions of analog sets scattered throughout homes in their service areas. “No one has told me I can convert digital to analog,” he said.

Taking advantage of the transition to digital TV is not the only way the operators hope to alter the relative weight of their relationships with broadcasters.

The American Cable Association also is backing legislation that would have the effect of ending the exclusivity of local broadcast television signals in 98 markets across the country.

The Television Freedom Act of 2007, introduced in June by Reps. Mike Ross (D-Ark.) and Barbara Cubin (R-Wyo.) would change the “distant-signal” rules that apply to local TV broadcasting. At present, cable operators are generally precluded from importing signals from stations not in the designated market area in which a system is based.

But under the TV Freedom Act, the rules would change for markets that cross state lines. In effect, a cable operator could import signals, for instance, from West Virginia or Pennsylvania into Washington, D.C., according to American Cable Association vice president of government affairs Ross Lieberman.

The choice would give cable operators greater leverage in negotiations with local broadcasters. The operator would have greater negotiating power because it could be delivering a second local TV signal from an affiliate of a given network, if a local broadcaster balked at terms of a new retransmission pact.

“That is not the intent” of the end to broadcasters’ exclusivity in local markets, said Lieberman. “But it would have the effect.”

WINDOWS CLOSING

Timing is the last point of leverage in the digital-TV transition that cable operators can use to reset its relationships — and retransmission terms — with local broadcasters, Gessner said.

Broadcasters are required by law to deliver their signals to the entire audience in their markets via the airwaves they’ve licensed from the federal government, he said. Thus, as long as there is uncertainty about their ability to fulfill that public-service obligation, cable operators have power — if they can help put the pieces of the broadcast audience back together.

The “fulcrum for our leverage” is before issues get resolved on how to manage the delivery of digital signals to all operators — in Dexter, Mo., or elsewhere — and under what formats they can be delivered to subscribers’ TV sets.

One piece of leverage ends when the $40 coupons start going out. A second ends when the spectrum that broadcasters used to use to send out analog signals is auctioned off. The FCC set terms for bidding on that so-called beachfront property, known as the 700-Mhz slice of spectrum, last Tuesday, with the auction set to start by the end of January.

Right now, though, it may be hard to use that “fulcrum.” There is no crisis in the transition, said Megan K. Pollock, manager of public policy communications for the Consumer Electronics Association. Technical issues will be resolved and education campaigns, backed by the CEA, the National Association of Broadcasters and the National Cable & Telecommunications Association, will be well underway next year.

But “none of this is simple,” Knorr said. The smaller operators must make a coordinated push to get their issues, like the digital cliff, onto the table in Washington, D.C., before the crisis does come.

Absent that, Gessner said, the “maximum leverage point” for operators may not come at all before Feb. 17, 2009.

That point instead would be Feb. 18, 2009, he said.

When sets go dark, and, in the phrase of FCC commissioner Jonathan Adelstein, a “tsunami of consumer complaints” ensues.

Linda Moss contributed to this report.

September