[opendtv] Destruction of the OTA Broadcast Franchise

  • From: Craig Birkmaier <craig@xxxxxxxxx>
  • To: opendtv@xxxxxxxxxxxxx
  • Date: Mon, 24 Nov 2008 12:23:13 -0500

I have change the subject for what is becoming an interesting and relevant thread...



At 7:43 PM -0800 11/23/08, John Willkie wrote:
It occurs to me that you guys are largely confusing "creative destruction"
with "destruction."

It was plainly the case that a forced conversion to digital television from
analog (the U.S. implementation of same) was going to change "television
broadcasting as we knew it."

This is running alongside the accretion of what used to be the whole
enchilada to the wider selections of cable and satellite.
I would offer that if the transition hadn't been launched, that television
broadcasting would be in worse shape now than it is.  There is uncertainty
in the transition, sure.  There is also the power and flexibility of one or
more toolkits to make television something that it could never be in the
analog world.

And, it's plainly ridiculous to assert that the NAB intended, through the
transition, to destroy television broadcasting.  They clearly represent the
views and intentions of television broadcasters.  Sure there are unintended
consequences, but the greater risk was doing nothing.


I have been reminded many times that we should "Never ascribe to evil intent that which can be adequately explained by stupidity."

Perhaps "stupidity" is not the best word to use here. For this discussion I think it would be more appropriate to replace stupidity with "opportunism."

There is little doubt that the "original intent" of the NAB proposal to develop an ANALOG high definition TV service was an offensive tactic to protect the broadcast spectrum from those evil land mobile interlopers. The need for HD was viewed as a way to permanently tie up the spectrum using an analog augmentation scheme. I doubt seriously that the any broadcaster, or the leadership of the NAB, had a clue that DTV was lying just around the corner. These folks believed that the sheer size of the problem - enlarged by the move to HDTV - would protect video technologies from the threat of digitization for decades. OK, so I guess you could say this was stupidity...

But in the late '80s I believed that too. Pcube was an acronym for the Personal Picture Processor, a computer based controller - with a graphical user interface - that would rely upon videotape machines and hardware-based image processing to create content.

Like the broadcasters, the first demonstrations of "broadcast quality" digital video compression in 1990 caught me by surprise. But that revelation also forced me to rethink virtually all of my assumptions about the future of video processing, the evolution of video production tools, and the way video would be distributed. I immediately latched onto video compression as the core of my new view of the world, and made a career out of helping real innovators develop the computer-based tools for content creation we all use today.

Broadcasters collectively yelled - "Oh Shit" - and started building roadblocks to the digital transition, even as Al Sikes told them to develop and transition to a DTV standard. First they co-opted the ISO MPEG process, entrenching all kinds of unnecessary IP into the standard so that they could use interlace as a barrier to "convergence." Then they formed a Grand Alliance to drag out the process by an addition three years. Whether they intentionally saddled broadcasters with a dysfunctional modulation standard is open to debate. Having been there and participated in this phase of the development of the standard i would simply ascribe this to Intellectual Property opportunism.

For broadcasters, the DTV transition has been a necessary evil to keep the service viable a bit longer while they cash out on the real deal.

Bert has it exactly right - when broadcasters were granted the right to negotiate for retransmission consent payments from cable in 1992, the value proposition of the OTA broadcasting franchise was dramatically transformed. Unfortunately, most local broadcasters did not understand how they were being used by their networks to undermine their future viability. For most it did not matter; they knew that their precious franchise would remain highly profitable for another decade or two, and they they could plan a comfortable retirement.

Network affiliates turned over the keys to their future, allowing the networks negotiate the first round of retrans consent contracts. The networks - other than CBS - used this leverage to rebuild their empires, creating new outlets for sports, news, and off-network programming. By the end of the '90s the five media conglomerates (the four networks and Time Warner) controlled 90% of everything we watch...again.

With control of content once again, the media conglomerates used retrans consent to get out from under affiliate compensation. Soon they will be demanding a cut of the cash the stations get from the current round of retrans consent payments. And any hope for success for the new mobile service is likely to be linked to what the stations will have to pay for the rights for content for this service.

As for the news franchise, it is dying. It is amazing that multiple stations in a single market are still in the news business. Multiple newspapers in a market died generations ago, and now the future for newspapers seems certain...death.

The only reason that TV news - in its current form - has survived is the high profit margins that network affiliates enjoy in major markets. It is difficult to image having more than one large news organization in a market a decade from now.

As for the NAB, it is finally losing its leverage in D.C. The spectrum is more valuable to the politicians as a source of new revenue.

One need only look at the raw numbers for the networks and local broadcasters to see why the politicians are drooling, and why the networks want to cut out the affiliate middlemen.

Local broadcasters haul in nearly half of the total revenues of the broadcast industry; if you add the revenues from network operations and a networks O&O's it may represent about two thirds of broadcast revenues. The networks want all of that revenue, and the politicians look at what they gave away and say "we want it back," or at least a decent cut. Auctioning the spectrum for new uses is the easiest way to get that cut, AND they get the money up front to spend NOW.

I saw a story today that the Obama administration is not likely to re-introduce the Fairness Doctrine - it might muzzle everyone, not just talk radio. Instead, the FCC may place very significant localism demands on all broadcasters. This would serve two purposes:

1. To reduce or eliminate a significant portion of national content from the networks and syndicators. 2. To make the business unattractive from a profitability viewpoint, making it easier to reclaim the spectrum.

All in all brewing beer seeks much less risky, although the regulations and licensing are a major barrier to profitability.

Regards
Craig






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