Promise of Digital TV Fades,
As Broadcasters Complain
By KYLE POPE and MARK ROBICHAUX
Staff Reporters of THE WALL STREET JOURNAL
NEW YORK -- Filmmaker Barry Rebo was certain he
had found the next big thing in television.
On a trip to Japan, he saw his first high-definition TV set
-- with a picture that looked nearly three-dimensional
and with crystal-clear sound. He figured that when
consumers saw HDTV, they would toss out their old
sets just as they had traded their black-and-white sets
for color. Using special digital cameras, he began to
create the largest collection of HDTV programs in
America.
Today, more than a decade later, not a single one of
Mr. Rebo's films has made it into America's living rooms
as HDTV. "This thing could go on forever," says Mr.
Rebo, now gray-haired, sitting in a sparse office in New
York's meat-packing district.
Rarely in the history of American business has there
been a new technology that promised so much -- and
delivered so little. HDTV, it turns out, is going to take
far longer, cost far more, and attract far fewer viewers
than anyone has predicted. After lobbying for more than
a decade to get HDTV approved by the government,
broadcasters got what they wanted, but now they are
backing off promises to switch their signals entirely to
HDTV.
Broadcasters Backpedal
Instead of making a massive switch over to a single
HDTV signal starting next year, as originally promised,
networks are now talking about using just a portion of
the high-capacity digital spectrum of HDTV to offer
extra channels of standard TV signals that don't look
much different from what is already on. The
backpedaling has infuriated many in Washington who
feel they were duped by the industry's lobbying effort.
Some in Congress are threatening to levy fines and
penalties against broadcasters that don't live up to their
HDTV promises.
But industry executives say there was no duplicity -- it's
just that the technology guys were way ahead of the
money guys. "This whole digital transition has been left
to the engineers until just about six months ago," says
Michael Jordan, chairman of CBS parent Westinghouse
Electric Corp. "All of a sudden we got this thing
approved, and nobody has a clue what they are going to
do." Even its biggest boosters concede that HDTV,
once the Holy Grail of the TV industry, has left many in
the dark. "The truth is that no one knows what to do,"
says HSN Inc. Chairman Barry Diller, who sat on a
federal committee that reviewed the advanced TV
technology. HSN owns Silver King Broadcasting.
Boon for Builders
Because the HDTV effort is in such flux, even Wall
Street can't handicap the players or sort out who, if
anyone, will make money. To meet deadlines put in
place by federal regulators, local TV stations are now
spending about $16 billion to build transmission towers
and equip their stations with receiving and transmitting
equipment. That is a boon for a handful of equipment
makers and tower builders, but there is little return in
sight for the broadcasters. "We're all going to have to
spend a lot of money, and it's not going to get us
anywhere," says Jim Goodmon, president of Capitol
Broadcasting Inc., the first company in the U.S. to
deliver an HDTV signal.
HDTV pictures offer a higher-resolution, wider-screen
picture similar to the ones seen in movie theaters today.
The picture itself is rectangular, as opposed to square,
and packs in twice as many lines of resolution as
conventional TV sets. That, combined with the fact that
digital signals aren't as susceptible to interference, help
make the HDTV picture much clearer.
Few Sets Coming
But there are no TV sets out there actually equipped to
receive such signals -- and until the networks decide
their plans, Sony Corp., Zenith Electronics Corp.,
Thomson SA's Thomson Consumer Electronics and
others won't be selling the sets in mass quantities
anytime soon.
What is surprising about the current quagmire is how
recently HDTV seemed so imminent and how the very
players who pushed hardest for HDTV are hedging their
bets. HDTV had little or nothing to do with consumer
demand; it was born out of a power grab by the
broadcasting community in the 1980s as a way to keep
valuable broadcast spectrum from being parceled out to
paging companies and other data-communications
concerns. Convinced that TV air space was their right,
broadcasters argued that they needed the spectrum for
advanced television technology, which they said would
guarantee free over-the-air TV forever.
The broadcast networks enlisted the support of
Congress, tapping into xenophobic fears about
America's technological battle with the Japanese.
HDTV quickly became embroiled in Sputnik-type hype.
Just as the Russian space program of the Cold War era
was the first to put a man in space, NHK, the
hometown Japanese national broadcasting company,
had produced the first HDTV picture. By the middle of
the 1980s, Congress was being told that HDTV was
essential to the survival of the American electronics
industry. Even the Defense Department jumped in on
the theory that high-quality television was crucial to
success on the battlefield, as well. Egging on the whole
spectacle was the consumer-electronics industry, which
had fallen into a slump as sales of conventional TV sets
matured.
An alliance of U.S. companies came up with a standard
for HDTV that was adopted by the FCC last
December. This past spring, the FCC began to give
away the valuable digital real estate, on a promise from
broadcasters that all of the nation's consumers would be
receiving digital TV, which includes high definition, in
just nine years. The broadcast industry and the FCC
tentatively agreed on a schedule for the rollout of
HDTV, which included a mandate that 26 TV stations in
the country's biggest cities-representing about 30% of
U.S. TV households-must begin broadcasting in a digital
format by late 1998.
License Risk
That is the first step to making the full conversion to
HDTV. By mid-1999, that initial group will expand to
40, and by 2000, to 120 TV stations. By 2006, all of
the TV stations in the country must be broadcasting a
digital signal or risk losing their FCC license.
But nobody believes the deadlines will be met. Local
TV stations have to install new transmitters, new digital
production facilities and new towers at a cost of
between $8 million and $10 million each. That is about
$16 billion nationwide, estimates the National
Association of Broadcasters. The networks, meantime,
face the additional costs of new digital production
equipment, transmitters, even cameras and new sets.
At General Electric Co.'s NBC alone, the cost of
conversion has already exceeded $50 million. News
Corp.'s Fox Broadcasting estimates that it will have to
pay $100 million to fully convert its 22
owned-and-operated stations. "We're talking a decade
before anything is real," says Larry Jacobson, an
executive vice president at Fox Broadcasting, who is
leading an internal group studying digital TV.
Persuaded by those arguments, the FCC has accepted
for now the notion of allowing the broadcasters to offer
a hybrid of HDTV and conventional TV. Using the
same technology needed to show HDTV, broadcasters
can break up the signal into several different digital
channels, but they wouldn't be high definition. Both Walt
Disney Co.'s ABC Television and Sinclair Broadcast
Group Inc., one of the largest TV-station groups in the
country, say they are exploring that option, and Fox and
CBS may follow suit.
PBS Model
The Public Broadcasting System may be a model; it is
considering a compromise plan to create channels as
well as broadcasting two to three hours a day of
HDTV.
The networks see the chance to offer new channels on
the digital spectrum as a way to compete with the
plethora of cable channels chipping away at their
broadcast audience. Of course, the networks still
haven't figured out where they will find all the
programming to fill the new channels. And the new
channels probably won't be seen by most people. For
viewers to see them, they will have to buy a
yet-to-be-designed "converter" box that translates that
signal so it can be seen on existing analog TV sets. The
cable industry, meantime, is already rolling out its own
version of a set-top box to vastly expand the number of
channels for cable subscribers.
But critics say that forgoing a single HDTV signal in
favor of squeezing more channel space out of the
spectrum is breaking promises broadcasters made to
win control of broadcast rights valued at tens of billions
of dollars. Rep. Billy Tauzin, a Louisiana Republican
and chairman of the House Telecommunications
subcommittee, said in an interview that if broadcasters
balk on HDTV, they could face hefty fees or severe
public-service requirements. "I can guarantee ABC and
every one of the broadcasters that there will
undoubtedly be a debate," if they scale back on their
HDTV plans, says Rep. Tauzin. "I would bank on that
fact."
Gigi Sohn, an attorney for the Media Access Project, a
digital-TV watchdog group, blames the networks for the
HDTV mess. "I think the broadcast industry has pulled
one over on Congress and the American public," she
says.
Tower Trouble
Broadcasters deny that is the case. Besides the huge
costs, they note, there are logistical hurdles that no one
anticipated. Among them: a shortage of crews trained to
build the towers that hold the digital transmitters.
"There's no way we can build this infrastructure in the
time frame they've set," says Ronald L. Gibbs, president
of Lodestar Towers Inc., a tower builder in Tequesta,
Fla. "These things just aren't stamped out in mass
production." And in many communities, the construction
of new towers for digital television has attracted fierce
opposition.
Meanwhile, broadcasters' hesitation has led to a
chicken-and-egg standoff with the makers of HDTV
sets. The broadcasters don't want to commit to
broadcasting their signal in HDTV because no one owns
an HDTV set and demand is uncertain. Manufacturers
say they are waiting on the networks. Set makers
concede that while they hope to have the first HDTV
sets by next year, generating consumer interest will be
impossible if there is no programming in HDTV from the
networks.
Concerned that the broadcasters are punting on HDTV,
some manufacturers are considering providing the
programming themselves. Japan's Matsushita Electric
Industrial Co., which makes Panasonic TV sets, is in
talks with Hollywood about co-producing HDTV
shows. "Programming will be the key driver" of HDTV
sales, said Peter Fannon, Matsushita's
government-affairs director, at an HDTV conference in
New York Thursday sponsored by UBS Securities Inc.
Lukewarm Consumers
Surveys about how consumers will react are mixed. A
poll commissioned by Harris Corp., a maker of
digital-TV equipment, said that 39% of the people
surveyed said they would buy new TV sets as soon as
they were available, and 47% said they would make the
purchase in one to two years. In another survey this
summer of 1,000 consumers by Price Waterhouse, TV
buyers said they would be willing to spend only about
$150 more for an HDTV set than for a conventional
one.
Clearly, consumers appear indisposed to spend anything
close to the $3,000 to $5,000 price that early HDTV
sets will command. The initial steep price of HDTV
means that fewer than 40% of the households in
America will own HDTV sets by 2006, according to the
Electronic Industries Association. That fact recently
helped prompt federal regulators to back off of an
earlier deadline that gave local TV stations until 2006 to
retrofit their equipment to allow HDTV.
In the long term, TV-set makers stand to gain from a
conversion to HDTV. For most of the past decade, the
TV-set business has been a dud, dominated by a
mature, sated market -- 98% of U.S. homes have at
least one TV set already -- and poor margins. There are
about 250 million TV sets, or about 2.5 sets per
household, UBS says in a report, and one out of four
families buys a TV set every year.
Scary Time
But some TV manufacturers say consumers aren't
buying new sets now, waiting instead for new digital
sets. In hopes of keeping its high-margin business from
collapsing, Zenith Electronics, a Glenview, Ill., TV-set
maker, last month took the unusual step of promising to
refund the cost of its large-screen TV sets for customers
who want to buy a new HDTV. "There are too many
unanswered questions at this point," said Phillip J.
Schoonover, senior vice president of TV retailer Best
Buy Co. "This can be a scary and expensive time."
In the end, the TV-set makers and retailers could make
out the best if, after a decade, consumers like what they
see coming from digital-television signals and begin a
wholesale switch to HDTV sets, much like the switch to
color TV after the 1950s. And prices of
consumer-electronics products typically drop when
there is a mass market.
But echoing the views of nearly everybody involved in
HDTV, Westinghouse's Mr. Jordan says, "None of this
is going to happen from a business standpoint for at
least three years. Right now, this is a tempest in a
teapot." |
