[opendtv] Re: "It can't be done"

  • From: Craig Birkmaier <craig@xxxxxxxxx>
  • To: opendtv@xxxxxxxxxxxxx
  • Date: Tue, 2 Jan 2007 09:37:00 -0500

At 4:46 PM -0800 12/29/06, Dale Kelly wrote:
For convincing GVG to produce the 100 series systems you deserve high
praise. These products were well designed; they filled a real customer need
and were therefore hugely successful. That effort however, is not analogous
to our current discussion. GVG is a very typical relatively unregulated high
tech. manufacturer who must produce a product attractive to potential
customers and must then make a profit from that product; not an easy task
but certainly not akin to your proposal that a national and heavily
regulated industry reinvent itself.

Agreed. A company has the autonomy to re-invent itself, and the autonomy to revert back to the old way of doing things, even after some success in changing its underlying business model. It will always be a blemish on what I was able to accomplish at GVG, that the company largely abandoned the opportunity to develop new markets, and reverted to what was comfortable. As a result they stopped growing and have been handed from one industry conglomerate to another during the past decade.

In this, there may be a small analogy. It take real commitment to change to fundamentally reinvent oneself.

Clearly, getting broadcasters to commit themselves to the kind of changes I am proposing is a very complex matter. It is made even more difficult by the competitive dynamics of the industry. There are many "factions" in the industry, and no clear leadership to bring about fundamental changes. One need only look at the NAB to understand these dynamics. The organization claims to represent all broadcasters, however, it has been dominated historically by the Networks and the large market station groups, who have only one goal - to protect the Cash Cow. I have had many discussions with smaller broadcasters about forming an industry group to represent their interests. But this is something akin to declaring civil war.

For now the broadcast industry dynamics are such that what I am proposing would be next to impossible. Thus I have taken the stance that I should just bide my time and wait for the dynamics to change in such a way that real fundamental change might be possible. It is not clear to me whether this will happen in my lifetime, however, I thing that as we approach the 2009 deadline, the climate for change may improve. And AFTER the Congress critters get their hands on the 700 MHz spectrum to help balance the budget, they will still be looking for new sources of revenue - a dying OTA broadcast industry could be the next target.

For the past 73 years the broadcast industry has existed in a system of
dynamic, sometimes chaotic, government regulation and mandates*. That
regulatory system is partly responsible for what the industry has become, a
very profitable enterprise and coveted by many.

Profitability is related to the industry strata to which you belong. Clearly the networks, and stations in the top 50 markets have had a sweet deal 935-50 % profit margins for the station groups). As you pointed out, however, life in the bottom 50 markets is tenuous at best, and the markets that lie in-between typically have profit margins that are more in line with expectations for other businesses (5-10% profit margins).

Clearly, the conglomerates do not want to upset the apple cart. We experienced this during the ACATS process, and it continues today. But these same companies are the ones that will throw you to the lions when they no longer need you. And that is the inflection point I am looking for to help develop a following for a new business model for OTA broadcasting.

A most recent mandate is the digital television conversion that has so far
cost the industry more than 1 billion dollars - and counting. In the midst
of this conversion you now suggest that the industry totally dismantle its
self and fund it's own resurrection.

Wah Wah Wah!

This is just another example of the kind of crap I am talking about. The money spent on the DTV transition is nothing more than protection payments to keep NTSC going. I do understand that it has a far more dramatic impact on small market stations than the big market stations. But the total is absurdly small, given the fact that the industry is generating about $40 billion in revenues annually.

Here we are approaching ten years into the transition, and you are trying to elicit sympathy because the industry has spent a bit more than $1 billion on DTV over the past decade, while it generated nearly $400 billion in revenues. During that same decade, the cable industry spent well in excess of $50 billion to upgrade its infrastructure so that it can deliver your digital signals (among other things). Now the telcos are making similar investments. And di I mention the cost of developing the DBS services? One satellite can costs nearly as much as what broadcasters have spent on the DTV transition.

Actually, I am NOT asking the industry to fund its own resurrection. What I suggested is that the government use the proceeds from the 700 MHz auctions to pay for the broadcast assets that would be transferred to the spectrum utility. And in return, existing broadcasters would receive some protections related to carriage by the new infrastructure. The ONE fundamental change that i see, is that the networks and stations would pay for use of the new infrastructure. But they would not need to carry expensive transmission assets on their books, and they would not have those huge power bills every month.

This is a much bigger issue that simply protecting a legacy business. We are talking about a fundamental infrastructure for the 21st century in the U.S. We are talking about an investment (like the Interstate highway system) that will fuel innovation and growth for decades to come.

The key is to show broadcasters how they can survive in this new digital world, and to show the public and the politicians that there is a better way to generate revenues from the spectrum.

Craig, your a few years too late;
they've already spent that money on the current new system.

Sorry Dale, but I still have little sympathy. The investment to date is relatively small, and many of the assets that have been acquired will continue to have value if used properly in the new infrastructure.

Yes, there is a new system. Sadly, it is not going to help broadcasters survive; the only REAL value of this new infrastructure is that it may allow broadcasters to protect retransmission consent. So survival will depend on getting enough revenues from the competitors who re-transmit your signals to make up for the continuous decline in advertising revenues.

Instead of Free TV, we will be paying billions of dollars each year in subscriber fees, which will be collected for you by the companies that have the real infrastructure used to deliver TV services.

I would not necessarily be opposed to your proposal that a well designed and
more efficient shared carrier system be constructed. However, the cost of
such a reinvented system must be born by those to whom it provides
advantage, i.e.: use the auction revenues.

We are in violent agreement. I would also like to tie the hands of the politicians so that they cannot auction more spectrum in the future. We need to manage this resource like the national forests. Let's come up with a plan that uses the spectrum efficiently to deliver services that virtually everyone will use, and let the politicians get a cut of the action on an annual basis.

My point is: in your zeal to reign in what you consider to be a spectrum
wasting, overly profitable and undeserving industry, you attempt to make
your case by comparing Apples to Elephants.

The media conglomerates are the elephants. You are an apple, and elephants really like to eat apples. If you stay the course you WILL be eaten. Would it not be better to start working on a solution that fundamentally changes the market dynamics so that you can survive?


* Yes, the industry itself had a hand forming these regulations, though that
was most often done to gain an advantage over others inside the industry.
The CE companies have also had their fingers in that pie; the current DTV
conversion is a prime example of something that has been to it's great

For the record, the CE industry paid the tab for the ATSC standards work. Those broadcasters who even bothered to be involved we mostly concerned that the existing business model be protected. It worked out well for both parties: broadcasters have extended the useful life of NTSc and its inherent protections, and the CE industry was able to use the transition to DTV to help it develop a market for larger and more profitable HDTV displays.

Bottom line, the broadcasters who were involved really did not care if the ATSC standard worked. The main issue was that it not cost too much to implement, and it has not. And the CE industry was happy to give broadcasters a standard that does not threaten the ability of the media conglomerates and the CE industry to make us pay for "Free TV."


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