Lessons From USDTVs Demise By John M. Higgins Broadcasting & Cable
7/24/2006 http://www.broadcastingcable.com/article/CA6355397.html The recent bankruptcy filing by USDTV, the broadcast startup that hoped to sell a package of cable channels, hurts just a handful of major station groups that were backing the wireless venture. But the companys troubles underscore a question facing all TV-station owners: Is there any way to make money from the all-new capacity created by the switch to digital broadcasting? The conversion to digital gives every station in the country a tremendous expansion of capacity. In the same amount of spectrum occupied by a conventional analog signal, a broadcaster can fit a high-definition feed of its main station and still have space to create three additional channels. A station that chooses not to broadcast an HD signal can create up to five additional channels. In one sense, this is a tremendous windfall in an industry that faces slim growth prospects in its core business. Think of it as a government grant of ritzy beachfront real estate given exclusively to people who already live in the neighborhood. The downside is that creating that much new property out of thin air produces a glut. Digital puts more TV real estate on the market than there are immediate viewers or advertising dollars to support it. Unless broadcasters create a viable economic model, the industry may have spent billions upgrading stations without any obvious return on investment. If thats true, it may a classic case of be careful what you ask for, you might just get it!, says Bear, Stearns & Co. media analyst Victor Miller. Broadcasters and their networks have laid out a variety of plans to fill up that new capacity. NBC and its affiliates are creating local weather channels. Sinclair Broadcasting is filling a digital-only channel with older entertainment programming at its flagship Baltimore station. Ion Media, formerly known as Paxson, has partnered with producers of childrens programming to create a national kids network anchored by its own stations that will instantly get clearance in 60% of the country. A new music-video channel, The Tube, has signed up enough stations to clear 74% of the country. LIN TVs new CEO, Vince Sadusky says the new capacity is a blank piece of paper for the whole industry. Just as it took LIN several years to solidify a Web strategy, Sadusky plans to experiment with several niche approaches in various markets: Anybody who says theyve got the answer is lying. Some ideas are more promising than others, but the primary driver behind all of those multicast plans is keeping programming costs ultra low. Why? The audience is limited. Between the 15 million or so owners of digital TVs and subscribers to digital cable, just one-third of consumers can watch broadcasters new channels. The audience problem will be resolved when the TV industrys conversion to digital is complete in February 2009. Before it filed for Chapter 7 bankruptcy, USDTV was envisioned as a major solution for the dilemma. The company employed clever technology to aggregate the spare capacity of several local TV stations to create a mini wireless cable system. Subscribers with a special set-top box could see a dozen or so cable channelssuch as ESPN and Fox Newsplus all the local digital-broadcast services, even if they didnt have a high-priced digital TV set. Priced at just $19.99 monthly plus the one-time purchase of a $99 set-top box, the package was geared to low-end video users turned off by the cost of cable. The main incentive for stations was payments both to lease their spectrum and for the consent to retransmit their programming as part of the USDTV package. They wouldnt even have to go through the effort of programming their new channels, just hand the spectrum off. The prospect was tantalizing enough for USDTV CEO Steve Lindsley to secure backing from major broadcasters Fox Television Station, Hearst-Argyle Television and LIN TV, which invested $26 million last September. Unfortunately, USDTVs business plan was less clever than its technology. I estimate that launching USDTV in the top 30 marketsas was initially plannedwould have cost the company around $700 million. Signing up new customers is difficult and expensive, in part because USDTV has lost around $100 on every $99 box sold. Chasing low-end customers means many dont pay their bills. Many subscribers that did were simply dissatisfied with the range of programming. USDTV says customer churn averaged 4% monthly. That means that the company could expect to lose half its subscriber base annually. Investors might buy the scraps of USDTV, but the mini-wireless-cable idea is probably as dead as similar ones that telcos pushed in the mid 1990s and lost hundreds of millions of dollars on. USDTV could help some programmers trying to exploit the digital broadcast space. Mike Ruggiero, president of broadcast consulting firm All TV Group, is behind distribution of The Tube and Motor Trend TV and says that some broadcasters were hesitating to commit to digital programming in hopes of hooking up with USDTV. Theyll be more willing to talk now, he says. But dont expect a lightning strike to ignite the digital broadcast world. Theres not going to be any home runs here, Ruggiero says. It will be a cumulative revenue stream made up of e-commerce, advertising and interactive opportunities. As usual in television, the strongest programmingnot the most clever use of the spectrumwill win the day. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
