[opendtv] Re: DTT in the US

  • From: Craig Birkmaier <craig@xxxxxxxxx>
  • To: opendtv@xxxxxxxxxxxxx
  • Date: Thu, 12 Jan 2006 09:57:26 -0500

At 4:41 PM -0500 1/7/06, Albert Manfredi wrote:
>Yes, Craig. And just prior to that, we had been discussing
>the wide availability of DVB-T STBs in Euro markets, vs. the
>much less broad choice to ATSC STBs in US stores. And the
>fact that CE manufacturers can and do produce CE products
>to meet all manner of different global standards ... until it
>comes to ATSC, that is.

That was a different thread, but the issue is much the same. The CE 
vendors have little reason to offer products that sit on store 
shelves and must be sold at fire sale prices when the follow-on 
models are introduced. And CE retailers are very reluctant to stock 
these receivers, given the high rate of returns.

>This LG and Samsung announcement was simply another
>example of what we had been discussing in that thread.
>Reference to mobility was tangential to the on-going
>thread. Those two companies were not flinching at
>offering products built to US-specific and more global
>standards, which in principle they could also do with ATSC
>vs DVB-T products.

No. The reference to mobility was at the HEART of the thread. These 
companies are introducing phones that will work with existing VIABLE 
services that "may" develop into significant markets.  There is NO 
prospect that ATSC can become a viable mobile video service or that 
there will ever be a market for it given the complexity and power 
requirements for an ATSC receiver.

>No, Craig. By "freeview" I mean FOTA TV. In the same
>previous discussions, we had talked about how anything
>that involved monthly subscriptions was supported by
>CE vendors, apparently, while anything involving FOTA *in
>the US* was not readily available. Despite the fact that
>the potential is there, already installed. Which is why I
>mentioned how many multiplexes we already have here,
>as opposed to the much smaller number in many Euro
>DTT markets that appear to become successful.

Sorry Bert, but your meaning was lost on me and the rest of the audience.

FOTA is a dying service in the U.S. It is not competitive with 
multi-channel services. Adding more channels to the FOTA multiplexes 
does not change this, UNLESS these new channels offer access to 
content that people really want. And virtually ALL of that content is 
ONLY available via cable and DBS today (or on DVD after it has been 
run on the multi-channel services.

Freeview is a multi-channel service that is providing people in the 
U.K with a reasonable choice of content that was only available via 
cable or satellite prior to the introduction of the UK DTT service. 
As a subscription service - On Digital - it failed, because it could 
not provide enough bang for the buck compared to competitors. But as 
a FREE service it is thriving because it provides a much better FOTA 
service without a subscription fee.

Our discussions have revolved around the fact that a Freeview service 
is not going to happen here in the U.S. for both technical and 
political reasons. And those reasons make it HIGHLY UNLIKELY that 
broadcasters will be able to revitalize the FOTA service by adding 
more channels to their multiplexes that do not provide the content 
that consumers are looking for.

>>Mobility is a non starter for ATSC, despite your wildest
>That's another topic, interesting IMO, but it takes an open
>mind to understand the issues.

Correct. I am glad that you admit that you do not have an open mind 
on about the issues. ATSC was never designed to be a mobile service; 
if broadcasters EVER decide that mobile is important, they will throw 
out ATSC rather than trying to enhance it in a manner that will not 
work on the existing base of installed ATSC receivers.

>That's because, much as I would love to understand the
>real obstacles, what you offer as reasons does not hold
>up. Broadcasters' greed, for example, is not a reason.
>Capitalism depends on greed. It's supposed to work
>with greed in the equation. Economics 101 says that if
>people get hooked on subscription TV services to the
>tune of 85 percent, when FOTA is also available,
>perhaps broadcasters and content providers are not
>being greedy enough when they sell to umbillical
>service providers.

Capitalism depends on providing consumers with a product or service 
that is perceived as being useful and worth the price. Greed is not a 
factor when there is competition, as consumers will buy from a 
company that provides a lower price if they believe that the lower 
priced product will work as well...or better.

On the other hand, when capitalism is rendered meaningless by 
political gerrymandering, turning what should be markets into 
monopolies and oligopolies, greed is a significant factor.

Can you show me a single person in this country who believes that 
monopolies and oligopolies deliver better value at lower prices? The 
reality is that both the content providers and the distributors of 
that content know that they can keep pushing up the prices because 
there is no competition - when a network increases their subscriber 
fees, the cable and DBS companies pass the increased cost along and 
add a little more to enhance their revenues too.

Why would any of these companies want to compete in an open marketplace?

>>My question to you - which you blew off - is how
>>can Channel 4 afford to pay ~$15 million annually
>>for secondary distribution via Freeview?
>Obviously, neither you nor I have the books to point
>to, to answer that question credibly. I'm simply
>suggesting that they are operating under a different
>model. That's why I listed the possible ways money
>could be exchanged between content creator and
>distrtibution service. If Freeview gets the $15M in
>payments from Channel 4, how does Channel 4 make
>money? I don't know the answer. For example, what
>fraction of ad revenue goes to Channel 4 as opposed
>to the Freeview distribution service? How does that
>compare with US cable systems and their broadcaster

This question can be answered easily and credibly. They can afford to 
pay for access to Freeview because they will reach enough additional 
viewers to increase their ad rates to pay for the carriage fees, AND 
make a higher profit. These profits will not reach the stratospheric 
levels that are common in the U.S. (i.e. 25-50% net profits), but 
they will at least allow these companies to make a fair profit.

Channel 4 makes money the same way that advertiser supported 
broadcasts have made money for nearly a century. They charge 
advertisers for the numbers of people who are watching. They may also 
make money from the syndication of any programming that they create 
for Channel 4.
For this discussion however, the answer is simple: Channel 4 will 
gain enough new viewers via carriage by Freeview to offset the 
carriage costs.

Now explain to me why U.S. broadcasters need to be compensated for 
carriage of their signals when in reality that carriage is allowing 
the broadcasters to charge more for their ads?

>>Let me make this perfectly clear. The situation in
>>the U.S. is NOT market driven. Broadcasters are
>>able to extort additional revenues from secondary
>It's just this sort of "explanation" that makes my eyes
>glaze over. This is nonsense. Broadcasters can ask
>whatever the umbillical service market will bear. It's
>not "extortion." No one will die or freeze to death if
>they can't buy that extra premium package, or if they
>can't receive ER over their cable or DBS system.

I'm not surprised as you refuse to understand the economics behind 
the U.S. content distribution system. In a free marketplace 
broadcasters could negotiate carriage based on the perceived value of 
their service to the secondary distribution market. This is happening 
today with the voluntary agreements for carriage of DTV broadcasts.

BUT, this leverage ONLY exists because broadcasters refuse to compete 
directly with the "umbilical services," choosing instead to let them 
handle the testy little task of collecting money from every potential 
viewer in their market.

Let's change perspective for just a moment.

What would happen if the broadcasters - not the media conglomerates 
with which they are affiliated - decided to compete with cable and 
work together to create a service similar to Freeview, with 30 or 
more of the most popular channels that are available via both FOTA 
and subscriptions services?

Would millions of consumers in the U.S. continue to pay more than 
$40/mo for 60 channels - most of which they do not watch - or would a 
significant percentage decide that the FREE service is adequate?

>Again, the exact tradeoffs are what we need. If
>broadcasters could only charge advertizers based on
>15 to 20 percent of their real viewership, neither you
>nor I have the slightest idea how that would percolate
>through the content creator industry.

Don't worry, this will never happen. We are in this nasty mess today 
because they can charge for every eyeball, regardless of how the 
content is delivered. The reality is that the ONLY way to turn this 
situation around is to stop watching TV. But just the opposite is 
happening. Once again this year, the average time spent watching TV 
for an individual has increased.

Unfortunately it is much like other utilities. It is not easy to stop 
using electricity and fuel to heat our homes, or to live without a 
phone. There are few viable alternatives. The best hope for 
competition in the TV markets in the U.S. is a bypass technology like 
Google or Yahoo, perhaps working with bandwidth providers, like the 
RBOCs, who are willing to compete with the TV monopolies and 

>>It is not a question of profitability. U.S. broadcasters
>>generate more than $15 billion in ad revenues each
>>year, and this is in addition to the more than $15
>>billion in ad revenues collected by the networks with
>>which they are affiliated.
>This has little to do with it. If profits are truly obscene,
>the market is supposed to self-reguilate.

This does not happen where there is no competition. Despite all of 
the noise about supposed competition in multichannel services, the 
reality is that they all are marching down the same road together, 
steadily increasing the cost of our national entertainment fix.

>  Sorry, but
>this sounds a bit the the behemoth SUV owner who
>complains about the price of gasoline. My reaction is
>always, "it can't be high enough, if you're still drrving
>to work in that."

An interesting point. Clearly the situation is not so dire that 
people are actually upset enough to mount an organized effort to 
promote real competition. As a nation we spend a huge amount of money 
on entertainment. For many, TV still is a good value - what does it 
cost to take a family of four to a movie?

So the reality is that the TV industry will continue to operate at 
very high levels of profitability, and that the consumer will 
continue to tolerate price increases that are 2-3X the rate of 
inflation each year.

>  Even if I might agree that the
>entertainment industry (or the petroleum industry) is
>making too much money, when I look at the demand
>side of the equation, it becomes awfully hard to fault
>the supply side. Same goes for pro athletes. What
>they charge is what addicts out there are pefectly
>willing to pay. Who's to say that's too high??

I do. But I am not your typical sports fanatic.

There was a time when I watched at least one NFL game every weekend, 
and often two or more. This season I have not watched a single NFL 
game from start to finish. The product has become diluted because of 
expansion; the athletes have become the antithesis of good role 
models, and the level of play generally has declined.

The good news is that we may be reaching the peak of excesses. Pro 
sports viewership is on the decline. Network dramas and sitcoms are 
on the decline. As choices increase, it will be harder and harder for 
the extortion to continue.

>So why aren't there gobs of sub-$100 STBs available
>on the store shelves? Why aren't broadcasters
>transmitting announcements about their DTT offerings?

Good questions Bert. Now why don't you honestly attempt to answer them?

>  >They will not be building ATSC receivers into all sets
>>and recorders this year
>March 2007.

No Bert. The majority of consumers are buying monitors, not 
integrated receivers, and there is no law requiring ATSC tuners in 

>>And by the way, there is nothing anti-competitive
>>about cable or DBS paying CE retailers to promote
>>their service.
>Promoting would be a retailer's job, not the CE
>vendor's job. And "promoting" is not what we are
>talking about. We are talking about collusion.

I did not say that CE vendors are responsible for promotion of 
multi-channel services. It is the retailers who are getting the 
ongoing revenues for selling multichannel services. And this is NOT 
collusion. It is simply the reality of how you get the attention of 
the retailers and the salespeople on the floor.

>A retailer who lies to his clueless customers about
>the availability of competing *third party* products
>or services is not exactly on the up and up. In a
>true open market, that retailer would possibly
>promote a third party service or product without
>shutting out the competition. But the CE vendor
>angle could be even more insidious (if true).

You are giving these salespeople too much credit. To lie they need to 
understand the options, and keep information from the customer. I run 
into poorly informed sales people all the time, but I almost never 
catch them in lies.

Is it misleading to tell a potential customer the truth?  OK Joe 
sixpack here are your choices:

1. Buy a STB or integrated receiver and put up an antenna. It may or 
may not work where you live. And if you get it working you will be 
able to receive only a handful of stations (typically 4-5 and maybe 
10 in larger markets).
2. Subscribe to cable or DBS and get a wide range of choices, 
including and expanded line-up of HDTV content.

Salespeople may not be all that smart, but they are not dumb either. 
There is an 80% or higher chance that the potential customer DOES NOT 
use the OTA service, except perhaps on an occasional basis on an 
older TV. If they promote OTA DTV they most likely will have to turn 
the customer perceptions around about the new service. If they 
promote cable or DBS they may get a spiff.

>If subscription services pay residuals to CE vendors
>for building products to their non-standard, the CE
>vendor is encouraged not to build competing
>products which don't provide this same steady

How CE vendors are compensated for boxes they provide to the 
multi-channel services is simply a business negotiation. They can 
sell them for a set price, or they can lower the price a bit and get 
royalties for a year or two. Broadcasters could do the same for ATSC 
products, but they do not because they have little interest in 
promoting the new service, and ZERO interest in paying retailers to 
promote the OTA service, when they can get more money by encouraging 
people to subscribe to multichannel services, which will collect 
monthly subscriber fees for them.

As you say Bert, this is Economic 101.

>In a true open market, the CE vendor gets compensated
>for what he sells. He is not paid for *not* producing a
>competing product. Mind you, this was alleged. I'm not
>stating to you that it is fact.

Nobody is paying CE vendors a penny not to produce a competing 
product. There is no need, as there is no opportunity to make a 
profit selling a competing product that people do not want.

>In politics, that's called a bribe.

No in politics it is called a government mandate to produce something 
that you otherwise would not produce. The ATSC receivers that are 
making their way into TVs today are there because of government 
gerrymandering in the operation of a market, not because of 
marketplace demand.

>>The question you should be asking is WHY broadcasters
>>are not paying CE retailers to promote their service?
>True enough. One way to stop the effect of bribery is to
>allow bribery to be conducted freely. This doesn't seem
>to work very well in real world cases, but it's a thought.

There is no bribery going on here Bert. Well actually there is, but 
it is not the kind you are talking about. The bribery is the money 
flowing to the politicians to mandate the inclusion of tuners that 
consumers would not buy otherwise, and to prop up the monopolies and 
oligopolies that now control TV content distribution.

>I agree that broadcasters should promote their DTT tier
>openly, and that they don't do this close to adequately.
>I don't necessarily agree that they should provide
>kickbacks to CE vendors to keep them from building
>competing products.

As a start they could promote the service, and work with retailers to 
make certain that good information is available to consumers when 
they go to a store to make a purchase.

But this is NOT happening.

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