The DTV waiting game

Digital technology is the stuff of revolution, transforming industries-from music to movies-seemingly overnight. But, for many U.S. television stations and group owners, the transition to digital broadcasting is becoming a cold, calculated exercise in compliance that is to be endured, not embraced.

Most major-network stations in the top 30 markets are already broadcasting in digital, in compliance with the FCC's fall 1999 deadline, or at least have good reasons why they haven't been able to do so. In the medium to small markets, however, hundreds of digital stations still need to be built, and, outside of a few early adopters, that isn't happening very quickly.

Many broadcasters are playing the DTV waiting game, hoping for equipment prices to drop, business plans to materialize and network programming to expand. There are many unresolved issues. Prices for consumer DTV tuners and display units are still too high for most consumers. High-def content is rare at best, and upconverted programming sometimes looks worse than plain old NTSC. Many broadcasters, frustrated that they can't even get an appointment with cable operators to talk about carriage, are counting on the FCC to play the heavy. And the ongoing debate over modulation standards, cable interfaces and copy protection has made everyone else at least a little wary of what's to come.

As a result, with 20 months until the FCC's May 1, 2002, deadline, the DTV transition has become a cocktail-party conversation killer for some broadcast execs-precisely at a time when broadcasters should start planning in earnest.

"Whatever enthusiasm station managers once had for DTV seems to be gone," says Stephen Flanagan, vice president of engineering for Post-Newsweek Stations Inc. "It is very difficult getting anyone excited about the transition right now."

Manufacturers claim that the waiting game could actually drive prices higher. "Anything that can be done in an orderly fashion, rather than intense and last minute, can be done in a more cost-effective way," says Dale Mowry, vice president of television systems for Harris Corp. "If we have another four months of nothing happening, it becomes very dicey and very expensive."

It's tempting to dismiss that comment as marketing hype crafted to stoke this quarter's sales. But to meet the mandate, the industrial base serving the broadcast industry will have to yield approximately 50 transmitters per month between now and 2002. Harris Corp.'s main manufacturing facility in Quincy, Ill., described as the world's largest, is currently operating a single shift at less than capacity and, on a good week, shipping three to five new transmitters.

"We have plans in place to fill out the first shift and go to a second," says Mowry. "But to satisfy market demand over the next 20 months-and this would assume that things pick up in the next week or so-will require us to ramp up faster and harder than we had anticipated."

Meanwhile, NAB's running tally of digital stations creeps upward. Of the 1,600 commercial and public broadcasters in the United States, 151 are known to have a digital signal up and running. NAB representative Dennis Wharton maintains that this digital sliver is encouraging, considering that only 120 stations are currently mandated to be on air.

"It's noteworthy that dozens of these stations are on, despite the fact they are not required to be," says Wharton. "We are meeting our commitment well ahead of schedule. The issue now is whether the FCC will adopt some pro-consumer rules to help jump-start this transition."

Many broadcasters argue that, without must-carry, DTV could end up DOA. "The transition is teed up and ready to go," says Bob Rini, an attorney who represents broadcasters. "If the FCC fails to act in a timely way, it will not move forward on the timetable they envisioned."

Certainly, the finger-pointing between broadcast and cable concerns is no secret. Neither is the chicken-and-egg viewer situation: Broadcasters complain that retailers aren't stocking DTV products and that manufacturers aren't dropping prices fast enough. Manufacturers counter that the limited HDTV programming available isn't compelling enough to move the market. "If they are simply upconverting analog, my response is, don't bother, it doesn't matter," says Consumer Electronics Association President Gary Shapiro. "I mean, seeing Rosie [O'Donnell's] face upconverted-give me a break."

Analysts say broadcasters and groups in the small to mid-sized markets are taking a slow-as-possible approach to building their DTV infrastructure, led in part by Sinclair and other groups that question the reliability of the 8-VSB modulation standard. But the biggest problem is still that nobody knows where the money to pay for DTV is going to come from, says Howard Postley, director of the PricewaterhouseCoopers Technology, Information, Communication and Entertainment (TICE) practice.

"DTV offers no additional revenue in the near term, certainly HD has none, and datacasting is still a big wild card," Postley says. "Broadcasters want to go to pack-etized delivery of content, but they are having a lot of trouble developing the business models they need. As we get into smaller and smaller markets, that's going to be exacerbated."

Smaller-market stations already showing DTV have often done so thanks to some combination of manufacturer support and a "we're-first" sense of marketing mission. WRDW-TV North Augusta, S.C., serving the Augusta, Ga., area (DMA 115) signed on March 31 with upconverted NTSC, plus CBS HD when available. Why? The driving forces were CBS' April coverage of the Masters golf tournament (which was itself supported by Sony Electronics) and a multimillion-dollar equipment deal between wrdw and Harris Corp. "We ended up having some attractive deals made to give us the impetus," says wrdw Chief Engineer Kris Anderson. "To get the Masters on-air was the big hurry-up on it, anyway."

Early adoption does not come without a price. Within three months, wrdw acquired a transmitter, strengthened and modified its tower, mounted its permanent antenna, and modified the power coming into the transmitter building-all while a major SDI studio conversion was under way. Total expenditures on these upgrades for 2000 were approximately $5 million, according to Anderson.

The DTV station's power consumption is throttled back for now, but it still increases wrdw's electricity bill by approximately $6,000 per month. "That's a large chunk of change to be feeding the 30 or so sets out there," Anderson says.

But there are no regrets. The upgrades fit with the overall mission of Gray Communications Systems, which owns wrdw and 12 other stations, according to Regional Vice President of Television Wayne Martin. "All of our stations except two are news leaders. And those other two are No. 2 in their markets," he says. "There will be financial opportunities that come with digital distribution. I liken it to the early days of AM-FM radio. There is real value in those stations to distribute local content."

The plans of larger television groups suggest that most commercial broadcasters will in fact make their May 1, 2002, DTV deadline, at least when they don't encounter tower issues. Belo Corp. has all six of its top-30-market, major-network-affiliate stations on the air, leaving 14 left to convert. "Timetables will be staggered in order to distribute the workload, but our goal is to have all stations on the air by the FCC deadline of May 1, 2002," says Bob Turner, vice president of engineering for Belo Corp, Dallas.

Meredith Broadcasting Group has six full-power stations in DMAs 30 and below, from NBC-affiliated WSMV-TV in Nashville, Tenn., to WOGX-TV in Ocala/Gainesville, Fla. "At this point, nothing leads me to believe we won't have ample time to make the deadline," says Joseph Snelson, Meredith's vice president of engineering.

Tribune Broadcasting Co. has several issues to resolve before all 23 of its stations will be broadcasting DTV, according to Ira Goldstone, Tribune Corp. vice president of engineering and technology. In Denver (DMA 18), a group of residents of Lookout Mountain are battling broadcasters over a proposed DTV tower, while, in Boston (DMA 6), city approval is still needed to construct a new tower. In New Orleans (DMA 41), neither of Tribune's two holdings (ABC-affiliated wgno-tv and WB station wnol-tv) has a tower robust enough to handle DTV.

"I think every group will run into some obstacles," says Goldstone. "We are not in a perfect world. There are too many interests at stake, from the political to the environmental."

In small markets, competing stations might collaborate to save money. That's what happened in Yakima, Wash. (DMA 124), where the four major network affiliates formed a limited liability company (LLC) to explore sharing costs for acquiring land, building a candelabra-style tower and installing transmitters at a shared site. "This is a horribly expensive proposition for any station, particularly small-market television," says Ken Messer, general manager of kima-tv Yakima, the CBS affiliate.

The cooperative hired an engineering firm to identify a site to replace several analog tower sites on mountaintops along the Ahtanum Ridge. The verdict: Stay where you are. "It failed to produce any results, but it was an exercise well worth doing, because it got us started thinking about the digital transition," says Darrell Blue, general manager of kapp-tv, the ABC affiliate.

The Yakima cooperative is now providing technical support and FCC-application assistance to a government-based translator district serving approximately 9,000 homes in rural Kittitas County. But that won't minimize the financial blow of DTV. "As for primary coverage areas, each station will do it on its own, just like they normally would," Messer says.

Kapp is owned by Morgan Murphy Stations, another station group that has already started the digital scramble. "Whether we're talking about digital, high-def or the Internet aspect, we are going to find ourselves with very different alliances and partnerships than we ever had before," says President Elizabeth Burns. "If you think in the traditional vein, you are going to get left behind."

Among the ideas being kicked around are regional master controls in which larger-market stations would serve as hubs to smaller-market stations. "We are certainly looking at that for [kxly-tv] Spokane and [kapp-tv] Yakima, Wash., and [wisc-tv] Madison and [wkbt-tv] Lacrosse, Wis.," Burns says.

The smallest market to have a DTV station right now is Quincy, Ill. (DMA 161), which also happens to be the manufacturing hub for Harris transmitters. Wgem-tv, which launched its digital signal June 16, was also the first analog TV station in the market back in 1953.

Most of wgem-tv's DTV equipment-transmitter, encoders, monitoring equipment and antenna-was purchased through an agreement with Harris. Ralph Oakley, chief operating officer of Quincy Newspapers Inc.'s broadcast division, says the station has a "close relationship" with Harris that goes back more than 50 years. Community-relations bonus points were certainly not lost on either side, given the fact that Harris is a major employer in the market.

Oakley expects that the six-station Quincy Newspapers group will spend $25 million to $35 million on DTV, which is "certainly a significant percent" of the capital value of those stations. "Because we have had some success, we are in a position to time things out. But the investment we are making is just staggering. Other small-market broadcasters might not be able to manage it."

Indeed, conventional wisdom suggests that, for some stations, the cost of complying with the FCC's DTV deadline may exceed the valuations of the stations themselves. In worst-case scenarios, the owners go bankrupt, the station is forced into a sale, or the station simply goes dark.

"Think of a small-market broadcaster that has to spend millions to duplicate its signal, without the assurance that it's going to reach 70% of the current audience," says Rini, the broadcast attorney. "Some banks are going to be unwilling to finance that, which is why there is so much talk about alternative revenue streams."

Not everyone agrees. "Broadcasters have overplayed the investment aspect, frankly," says Michael Botein, director of the communications media center at New York Law School in Manhattan. "In markets 150 and below, there are some stations that are marginal now, and it's going to be difficult for them..But the vast majority are going to pay it off over a period of time. It's not as if they are going to have to suddenly come up with $3 million or $4 million."

If Botein is right, then May 1, 2002, could come and go without incident. Yet there are a number of DTV wild cards that haven't come into play yet, including availability of tower rigging and construction crews.

"Lead-time is rapidly becoming an issue," says John Sinton, vice president of marketing and communications for SpectraSite Broadcast Group. "Only so many towers can be manufactured and erected in a given period of time. And there are only so many erection and rigging crews, and they can only go so fast. Thus, a funnel effect in the demand cycle."

Some analysts say the tower issue is improving. But tower problems have already delayed major-market DTV stations by a year or more. CBS-affiliated wkmg-tv in Orlando, Fla., (DMA 22) has formed an LLC with wesh-tv to construct a 1,600-foot tower in the Orlando antenna farm. As of late August, the transmitter building was about 60% complete, with transmitter delivery scheduled for the first week of October. Tower assembly should be substantially complete by Dec. 21, or about a year from its proposed deadline.

"Given the difficulties with towers and tower crews, I suspect that a vast majority of the stations due on the air in 2002 will not make the deadline," says Post-Newsweek's Flanagan. "The larger-market stations, thanks to their financial situation and history, are generally in much better shape regarding their towers. So if it was hard for the large markets, it will be very hard for some smaller stations."