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What ever happened to free TV?

May 1, 2004 12:00 PM, BY CRAIG BIRKMAIER

Only 15 percent of U.S. homes still receive their TV signals exclusively over the air.

There have been a series of promotional announcements on the radio lately — they sound more like ads to me — talking about the advantages of free radio. The anti-satellite-radio ads, and many other spots that promote broadcast radio, pound home the notion that radio is free. They note that most of us now pay for the privilege of watching free TV. Only 15 percent of U.S. homes do not subscribe to a multichannel television service.

On the surface, it appears that the multichannel TV services are locked into an ongoing battle with TV broadcasters — especially when negotiations about must-carry, retransmission consent or local-into-local regulations become confrontational. At least, that is what consumers have been conditioned to believe.

Maybe the reason that radio broadcasters are so concerned about satellite radio is that they have seen what happened to free TV after people got used to paying for it.

The last impediment to the DTV transition?

With broadcast competitors all going digital, one might ask why broadcasters are dragging their feet on the DTV transition? The answer can be found in a 1997 Supreme Court ruling in the case of Turner Broadcasting System vs. the FCC. Turner brought this case in an attempt to overturn the must-carry rule and its expensive alternative, retransmission consent. Turner lost in a narrow decision. The court decided that the need to make certain that every home has access to all local broadcasts should take precedence over the First Amendment rights of cable systems, which argued that the must-carry rule is tantamount to theft of their private property.

The consensus coming out of that 5-4 decision, and a flurry of U.S. Court of Appeals decisions overturning FCC regulations, was and still is, that the must-carry rule will not hold up to another court challenge. In other words, analog broadcasts retain their must-carry and retransmission-consent privileges, while a similar mandate on digital broadcasts would not stand up to a court challenge.

With this in mind, the FCC delivered a watered-down order regarding cable carriage of DTV signals in January of 2001, leaving the door open to a further rulemaking. Citing the legal obstacles to such a decision, the FCC gave broadcasters the option — during the transition — of carriage of their analog signal or the primary video service contained in their digital channel. A station could also ask for carriage of its primary digital program as an analog signal on the analog tier of a cable system during the transition. The FCC left open a decision about mandatory carriage of DTV signals after the end of the transition. It was expected that this second ruling would take place early this year, but the FCC is unable to reach a consensus on an appropriate policy (i.e., one that will stand up to an anticipated court challenge).

A rock and a hard place

Appearances can be deceiving. On the surface, it appears that confrontation is driving the agendas of each of the participants in the DTV transition. One must remember, however, that these folks are in the business of creating and delivering stories. This would not be the first time that special interests have used techno-political leverage to limit competition, blaming the other guy for endless rate increases.

Local broadcasters are caught between a rock and a hard place. The rules created to protect them have been used by the big media conglomerates to build a new empire. They have been used to generate a second revenue stream from advertiser-supported TV — revenues that rarely trickle down to the local stations.

What is a local broadcaster to do? The answer is simple: Compete. In recent months, this column has covered the efforts of USDTV to develop a multichannel service using the DTV spectrum. For $19.95/mo., subscribers would get all local DTV broadcasts and a dozen of the most popular cable channels. At the recent NAB conference in Las Vegas, Emmis Communications, with support from 11 additional station-group owners, launched an initiative to get broadcasters to pool their spectrum to compete with cable. They propose offering a package of local broadcast with about 30 cable channels for $25/mo. And they plan to pay retransmission-consent fees to all local broadcasters, hoping to set a precedent that their multichannel competitors must follow.

The good news is that broadcasters are waking up to the realities of the digital transition. The bad news is that they are ill-equipped to compete by offering a small monthly savings for a subset of what their competitors offer. These companies have deep pockets and the ability to respond to such a threat.

If broadcasters want to get into the multichannel game, they need to renew the contract they agreed to in return for use of the public spectrum: The ads pay for free TV.

There are ample opportunities for broadcasters to generate additional revenues from premium services delivered through the DTV spectrum. The way to compete with cable and DBS is to make advertiser-supported TV free again.

Craig Birkmaier is a technology consultant at Pcube Labs, and he hosts and moderates the OpenDTV Forum.