BROADBAND COULD HURT BROADCASTERS’ KEEPING SPECTRUM, NAB IS TOLD

First Union Securities analyst Bishop Cheen suggested even higher value for broadcast spectrum -- $4.36 per pop per MHz. Even discounting that by 50% because of lower auction prices or other factors would mean value of broadcasters’ spectrum alone was 18% higher than total value of TV stock, he said. Just for TV Ch. 59-69, value is about $22 billion plus estimated $3.7 billion for leaving spectrum early, Cheen said.

Cheen acknowledged that he was “not confident at all” that value of spectrum would remain high, given auction collapses and problems European spectrum buyers have had, but he said “it sure feels like a land rush” to acquire spectrum. In case of 700 MHz band, he said “spectrum supply can’t keep up with demand,” although he said 700 MHz auction could “fizzle” because of legal problems clearing spectrum, spectrum cap, fragmented wireless standards.

Only about 22% of households currently receive their prime time TV over air, with rest getting it through cable, DBS or other multichannel media, Wolzien said. He predicted that figure could drop to 5-10% within 10 years: “How can you retain your claim on the spectrum if you reach only a handful of households in 10 years?” Broadcast executives in audience said figures were overstated because many TVs in households still received signal over air, even if one or more was connected to broadband, but Sun Microsystems Chief Researcher John Gage agreed with Wolzien that “this is going to be a fight.”

Broadcasters simply could continue to rely on lobbying to retain their control of spectrum, Wolzien said, but he suggested better approach would be to “demonstrate a renewed commitment to the public interest.” He said biggest problem may be “purveyors of used TV” -- stations that primarily carry reruns of old programs and similar content: “The use of the airwaves for programs that are not in the public interest hurts everyone. It is the public interest that will keep this spectrum for you.”

Focusing on public interest also would help convince regulators to allow broadcasters to use portion of their 6 MHz channels for return path, allowing broadcast TV to become truly interactive, Wolzien said. He suggested that good DTV signal could be broadcast using 5 MHz of spectrum, with remaining 1 MHz committed to return path: “There is really no talk by the broadcasters on the return path. That would make you a modern wireless company.”

Other big development is emergence of broadband, Cheen said. He predicted number of broadband subscribers would grow to 108 million by 2005 from 30 million today. Since there are only 105 million TV households, that would mean more than one broadband subscription per household. Figures include satellite, DTV broadband and broadband wireless data, as well as DSL and cable modems. Rich media services (Web sites that include streaming media and other new services) are driving broadband demand, said Steven Canepa, IBM vp-global media & entertainment. He said that video-over-IP required 1,000 times as much bandwidth as e-mail, and said rich media market would grow to $34 billion by 2004. However, Michael Zeisser of McKinsey & Co. said he had “a bit of skepticism about broadband changing everything.”

Jump to wireless Internet is another big trend, Canepa said. He predicted more people would use wireless to access Internet within 2 years than used personal computers. He said that meant there would be huge demand for “miniversions” of Web content. Canepa also said ability to easily repurpose and customize content would be key for broadcasters.

Broadcasters may be in best position to take advantage of new technology developments, said Skip Pizzi, Microsoft technology mgr.-TV standards. He said interactive TV might not be ready to take off because more people understood Internet and technology was “catching up” with interactivity. Broadcasters tend to think of personal video recorders as “death star” because they allow viewers to “zap” ads easier, but he said it “could be the best thing” for broadcasters by making possible new business models, much as VCRs created new business models for movie studios. Key, Pizzi said, is “flexible rights protection” that always moves with programming, allowing broadcasters to get revenue stream from every copy of program that’s distributed via Internet and elsewhere. Broadcasters aren’t too old to understand new digital world, he said, but current generation of broadcast industry leaders will “always speak digital with an accent.”

Sridhar Iyengar of Intel’s Architecture Labs said broadcasters already are moving heavily into “tele-Webbing,” connecting their TV programming to Web content. He said most TV stations had Web sites as did even most TV programs. For example, ABC has even moved successfully into directly connecting TV programs to Web sites, airing questions on TV game shows and allowing them to be answered via Internet, Iyengar said. He said that would accelerate as result of “hypergrowth” in broadband, which he said would increase to 46.7 million households by 2003, from current 5 million. Tele-Webbing is good business for broadcasters, Iyengar said, because it increases viewer loyalty and “stickiness” of TV programs. In case of Web content directly tied to football, he said study showed it extended average viewing time of game to 86 min. from 60 min. for those without Web connection.

NAB Exec. Vp-TV Charles Sherman said broadcasters were “still trying to figure out what their opportunities are” as result of new technologies, including “when and how interactive TV will get here and how we will handle the return path.” He said several companies that were on Futures Summit program at same site year ago no longer are in business: “There’s a feeling of disappointment at all the miracles that were supposed to happen.” However, NAB Pres. Edward Fritts said that, despite problems, “clearly the landscape of broadcasting is changing” as result of new technology. He said broadcasters were “looking for a lighter touch in terms of regulation” from new FCC.

Wolzien said it was “ironic” that there even was question about broadcasting’s future in new era since broadcasters “reach every home.” However, he said it might be difficult for smaller stations to remain independent in era of consolidation, because big media companies such as AOL Time Warner and Viacom would have to do attractive deals only with larger media companies. Broadcast-newspaper cross-ownership could help, Wolzien said, but lack of leverage with big media companies would mean even well- known TV firms would have to “consider consolidation.” -- Mike Feazel

Futures Summit Notebook…

Current new media industry structure is “fundamentally unsustainable,” McKinsey & Co. analyst Michael Zeisser told broadcasters. Biggest problem is fragmentation of ad-supported Internet industry, he said, with only 10 of more than 9,000 companies accounting for 80% of all ad revenue, vs. 10-50% of companies accounting for 80% of ad revenue in other media. Result will be “a massive wave of consolidation” involving less- successful companies, Zeisser said. He also said Web companies were “pricing themselves out of the market” for ads because ads were “vastly over-priced” compared with per-impression costs of traditional media, even if it were assumed that Web banner ads worked as well as traditional ads. As result, Web companies significantly overestimated their ad revenue, Zeisser said: “This industry does need a dual revenue stream.” One overlooked factor is vast amount of consumer purchasing that’s influenced by research done via Internet, Zeisser said. In top 5 categories of Internet-influenced buying, including autos and travel, research on Internet influenced 46% of all purchases -- $300 billion of purchases, he said.

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Arrival of Sony’s Playstation 2 game console will help quickly expand number of online distribution devices to 20 billion by 2005 from today’s 20 million personal computers, Sun Microsystems Chief Researcher John Gage said. Among impacts will be rapid proliferation of peer-to-peer networks, he said, and addition of broadband will make it easy to distribute video same way that Napster distributes audio. Playstation 2s also have easy connections to high-capacity hard drives, aiding distribution, Gage said, and next step will be wireless broadband connections. Peer-to-peer high bandwidth wireless network already is operating in Japan, he said. For broadcasters, he said, his best advice would be to hire young Internet-savvy kids to explain how rapid technological change affected their business: “You have got to think what this means for your business.”