'Cable' for the Thrifty

TV's latest gamble doesn't hype the fear factor. Instead, it involves using local DTV spectrum to bring viewers an over-the-air package of HDTV and 12 cable channels for $19.95 a month. It's a gamble that local broadcasters and USDTV hope will translate into DTV-related revenues, a bet that has cost the industry hundreds of millions of dollars and has yet to pay off.

USDTV, after three months of operation below the radar in Salt Lake City, last week officially took the wraps off its service and its plans for growth. It has already expanded the service into Albuquerque, N.M. Las Vegas is next.

USDTV believes its biggest market is people who currently don't subscribe to cable or satellite because either the service is too expensive or they don't see a value in the offerings. USDTV uses available spectrum on local-station DTV signals to send cable programming to subscribers. With three or four stations signed on in a market, USDTV has the bandwidth to send about 12 channels to viewers. The service requires a set-top box and antenna (purchased for about $130) and a $19.95 monthly subscription fee.

According to USDTV Chairman and CEO Steve Lindsley, it doesn't compete with cable or satellite.

He's aware, though, that cable and satellite operators might disagree with that claim. Although his company has signed deals with TV-station groups, he won't publicly disclose the names, fearing it might affect digital must-carry negotiations with cable operators.

"In Salt Lake City, Comcast is running ads [touting a $19.95 price for the first three months], and they aren't doing that anywhere else in the country," Lindsley points out. "I'm not sure if we can take credit for that, but it came out of the blue. We're wondering if it's a coincidence."

USDTV also added Fox News Channel and Starz to its original lineup, which includes ESPN, ESPN2, Lifetime, TLC, Discovery, and two Disney kids networks. Starz allows USDTV to dabble in premium content and also expand potential revenues beyond $19.95 a month.

Tom Gove, Starz senior director, national division, says the pay network has an exclusive 12-month window with USDTV in terms of premium services offered. Starz is expected to be priced at the lower end of the premium spectrum. "It gives us a chance to showcase the first-run movie product we have," Gove says. "And, as they add additional bandwidth, we're ready to provide additional services."

Lindsley expects the service to offer on-demand capability later this year, with the help of a set-top box that can store content on a hard drive. "Using the spectrum late at night to send movie libraries like MovieLink does is a compelling offering," he says. "We can escalate revenues without raising costs."

What's important to USDTV is using DTV spectrum to drive revenues. "Many of the ideas for over-the-air DTV services are based on finding a way to not be a gatekeeper," says Lindsley. "But why would you want to do that? We're sharing revenues on every piece of business we bring in with broadcasters."

The service also provides a new advertising outlet. According to Lindsley, a deal pending with USDTV's affiliated cable networks will allow stations to insert ads into local avails on the cable network they broadcast. They can be running spots on ESPN, he observes. "We think that's a nice value add."

In the end, USDTV's success will depend on its getting solid footing with consumers. The fact that its service is compatible with analog TV sets is a helpful step.

Another will be having retailers like Wal-Mart selling the tuner box for $200. Lindsley thinks that will get boxes installed in homes before the service reaches a market, giving it a waiting audience. And with plans for deployment in 30 markets within a year, the wait might not be as long as expected.