‘HARD’ DEADLINE IS URGED FOR TURN-OFF OF ANALOG TV SERVICE

Citing Berlin’s “successful” conversion to digital TV culminating with the turnoff of analog service in Aug., Sanduski suggested the “elaborate PR campaign” there -- including German govt. subsidies to low-income households toward purchase of digital tuner set-top boxes -- could be a model for the U.S. govt. Sanduski said Berliners now “receive 28 digital channels that are crystal-clear in place of the 12 analog channels they had before.”

Sanduski, who is active in the CEA Video Div., said there were 1,145 days remaining before the mandated Jan. 1, 2007, date on which analog service was scheduled to go black. But whether that deadline would be met was “an open question,” he said. He said he wasn’t advocating a specific deadline as a replacement for the 85% DTV penetration trigger in each market, but a hard date before 2010 was reasonable. Sanduski said fewer than 20 million households now relied on over-the-air terrestrial TV transmissions. Moreover, he said, by 2005, all TV programming is to be simulcast in HDTV, and by 2007, through the FCC’s DTV tuner mandate, virtually all TV sets sold in the U.S. will be digital. Considering the $70 billion of potential value of the analog spectrum that could be sold at auction after the turn-off of service, “every additional year of delay” costs the govt. at least $3.5 billion in lost interest revenue that could be accrued, Sanduski said.

Now that broadcasters have won a DTV tuner mandate from the FCC, affirmed by the U.S. Appeals Court, D.C., Sanduski called on broadcasters to transmit DTV signals at full power “to replicate” their analog service coverage. He also urged them not to seek additional compensation from cable or satellite providers on must-carry DTV programming that otherwise was beamed over the air free. He said broadcasters also could be doing more to promote DTV by transmitting more analog programming in “modified” widescreen form to promote awareness and sale of 16:9 sets. Showing slides of TV Guide ads for The West Wing and The King of Queens that lacked labeling trumpeting the availability of HDTV simulcasts, Sanduski said the major networks weren’t doing enough to promote that capability. He said CE retailers could do a better job promoting the DTV transition by using more compelling demonstration material on DTV sets on the sales floor.

The FCC’s recent adoption of plug-&-play interoperability rules will be the “tipping point” in the mainstream adoption of HDTV, Sanduski predicted. “Consumers value simplicity,” and plug-&-play achieves that, he said. His other predictions: (1) The “pitched battle” for market share between cable and satellite will spur the availability of more HDTV programming and in turn encourage greater HDTV adoption. (2) Sports in widescreen will be the “killer app” for HDTV. Noting that ESPN-HD has said it will provide 10 hours daily of HDTV sports programming in 2004, Sanduski said that network next year would become the new “I-want-my-MTV of a generation ago.” (3) HDTV-quality players and recorders such as Blu-ray will become as important as programming to the adoption of HDTV.

CBS TV Exec. Vp Martin Franks, participating in a later panel, reacted to Sanduski’s point about broadcasters’ lack of a promotional effort by conceding “there’s much more that could be done on promoting HD.” But Franks said he took exception to the notion that nothing was being done, saying that since CBS began beaming HDTV programming over the air 5 years ago, all such programs opened with “this big ugly sign that in essence said, ‘Hey stupid, this program is also available in high definition.'”

Franks appeared to agree with Sanduski on the need for better HDTV demonstrations on the retail sales floor. He said one of his favorite activities on a weekend afternoon when CBS aired college or NFL football games in HDTV was to visit a CE retailer “and find how many of them don’t have it on.” Franks said he meant no disrespect toward those retailers, but “there are all these beautiful widescreen HDTV-ready displays, and they're showing a DVD. We've got live, 1080i, full-motion sports going on, and I would say that in 10 percent of the stores I go into, it’s not on a single set.”

Franks said CBS TV, which now transmits HDTV programming 30 weekends per year, “would love to be a 52-weekend-per-year network.” But live sports are the most expensive to produce, he said, and “we are reluctant to do HDTV sports on the cheap.” He said depending on the features CBS chose to bring to the event and on the event itself, the incremental costs of delivering live sports in HDTV could run $250,000 per day or more. “Until we can drive those costs down, sports is going to continue to be a challenge,” he said.

Referring to Sanduski’s proposal for “a hard and fast date” for turning off the analog service, Franks said he would “enjoy the notion of millions of people marching on Washington to complain about the perfectly wonderful analog set that they bought this year being turned into an ugly end table.” On Sanduski urging broadcasters not to seek compensation on must-carry programming from cable and satellite providers, Franks was sarcastic: “Even though we've invested hundreds of millions of dollars in this programming, the suggestion that we give it away for free to people who are then reselling for billions of dollars was an interesting notion to me.” He also saluted the FCC for adopting the broadcast flag rules, saying “we were never going to allow the Napsterization of the broadcast television business.” While he conceded there was no “perfect copy protection solution,” Franks said CBS wanted to put “speed bumps along the way so that college kids were not sitting in dorm rooms across America redistributing our programming around the world.”

The U.S. is “on the threshold of widespread acceptance of HDTV,” said another keynoter at the HDTV Forum, Timothy Baxter, senior vp in Sony’s Home Products Div. He said the continuing growth of digital entertainment media such as DVD would bode well for the mainstreaming of HDTV. He said DVD generated sellthrough revenue last year in excess of $8 billion, which was more than the theatrical revenue from all the major movie studios combined. Evolution and success of new display technologies also was a good omen for HDTV’s acceptance, Baxter said. He said Sony was predicting flat- panel displays would account for 60% of the TVs sold in 2006. By that same year, he said, it’s predicted that DTV will account for more than 80% of the CE industry’s total revenue. Moreover, the industry has the potential to penetrate 35 million HDTV households by 2006.

There’s a potential for 9 million households to add an HDTV set within the next 18 months despite confusion that prevails among consumers about the hardware and the programming, said Sean Wargo, CEA dir. of industry analysis. He said the CE industry was on track to meet its upwardly revised projection to ship 4.3 million DTV sets this year, of which 87% would be HDTV-capable. CEA originally had projected shipments of 3.8 million DTV sets in 2003. The industry enjoyed a solid Sept. in which 500,000 DTV sets were sold, Wargo said. Wargo said the good news was that CEA surveys had found familiarity with the terms “HDTV” or “Hi- Def” had reached the awareness level of 73% or better. However, there also were prevalent misconceptions, he said. For example, he said, CEA surveys conducted in Aug. found 14% of those polled believed that digital cable and HDTV were the same. Those who equated digital satellite and DirecTV with HDTV accounted for 13% and 8%, respectively, of those canvassed, he said.