April 1998 Update

Michael McGregor & Thomas Spann

We suggested in Chapter 1 (page 5) that consumer acceptance will be a crucial aspect of commercial use of the Internet. In that regard, the Wall Street Journal reports that on-line shopping is showing signs of life. According to a survey conducted by Odyssey Ventures, almost 7 million households made on-line purchases in 1997, more than double the number from 1996.

But not all is well in cyberspace. New Century Network (page 14) is now among the fledgling electronic media developments to sputter out. In this instance, as in many others, the failure rests not on technology but conflicts of interest among the converging partners. The nine major newspaper publishers that established NCN could not agree on business objectives and organizational structure.

Miniaturization of all electronic devices is a hallmark of modern technological development (pages 70-71 and 100-101). The digital video (or versatile) disc (DVD) greatly increased the storage capacity of standard size CDs (pages 140-141). A new storage medium developed by Dr. Stephen Chou called a "nano-CD" now promises to eclipse the DVD, however. Dr. Chou says his "nano-CD" is about the size of a penny and holds 800 times as much information as a conventional CD. Dr. Chou says he has a re-recordable version that holds less data, but still enough for 80 minutes of HDTV video using both sides of the disk. Dr. Chou admits the "nano-CD" is not yet ready for the marketplace, but he is looking for a financial backer to help make the technology commercially practical.

Broadcastrs continue to estimate the cost of conversion to digital television (DTV) as anticipated equipment prices fluctuate and networks continue to speculate regarding the signals they will provide (page 79). One of HDTV's most outspoken proponents, Joseph Flaherty of CBS, says the major cost initially is equipping the station to pass through network programming. In the case of CBS, that digital signal apparently will be in the 1080 interlaced format (page 143), at least during primetime, according to network officials. Flaherty estimates current cost per station for upgrading to pass CBS DTV signals is between $2 million and $2.5 million. However, this does not include the cost of constructing a new DTV tower which easily could add another $2 million. Indeed, finding a suitable site for DTV antennas is a pressing problem facing many broadcasters, especially in congested markets such as New York City and Chicago. Cox Broadcasting's vice president of engineering John Swanson says a "bare bones" conversion to DTV will cost Cox as much as $6 million per station.

In last month's update, we noted the FCC was considering adding channels 2-6 to the DTV "core spectrum" available to broadcasters when conversion to DTV is complete (page 144). By a 4 to 1 vote, the Commission has included these five additional "low band" VHF channels making the "core spectrum" channels 2-51. The Commission simultaneously revised the allotment table to fix anticipated interference problems and to protect a number of low power (LPTV) stations (page 105). The FCC also will allow UHF broadcasters more power for DTV transmission, a response to widespread concern by DTV broadcasters assigned to UHF channels that they would suffer a loss of coverage. For more information, visit www.fcc.gov.

The nation's largest cable operator, Tele-Communications Inc., (page 162) expanded its TCI Digital Cable service into four new markets in March, bringing the total number of subscribers with access to the service to more than 10 million. In most markets where TCI Digital Cable is available, the company provides 36 channels of highly compressed digital video. A few markets offer more than twice that number and TCI plans to expand the number of channels as more people learn of the service and subscribe. The digital service is now available to a majority of TCI subscribers and the company says it plans an aggressive marketing campaign to promote it.

The Television Bureau of Advertising reports that TV ad sales reached $32.46 billion in 1997, up 4% over 1996 figures (compare to figures listed on page 168). Of this amount, network spending accounted for $15.23 billion, national spot sales were $7.2 billion, barter syndication totaled $2.5 billion, and local sales reached $7.5 billion.

On page 173, we explained "make-goods"--free commercial time to make up for viewing levels less than the networks promised for a particular program. Because the Olympic coverage of CBS did not reach promised levels (see the March update), some analysts predicted that CBS would be forced to provide between $25-50 million in make-goods to Olympic advertisers.

Prices for off-network syndicated programming continue to be strong. New York City's WNYW has agreed to pay $300,000 a week for the second round of Seinfeld episodes in syndication. Some industry analysts believe Seinfeld could rake in as much as $6 million per program when syndication deals in all markets are completed. That would be significantly higher than the record (almost $5 million per episode) set by The Cosby Show (page 222). Like The Cosby Show, however, Seinfeld has not been a spectacular ratings success in syndication and this may temper second round bidding in some markets, in spite of the historic WNYW bid. But elimination of the Prime Time Access Rule in 1996 (pages 220- 221) has made all top-rated network sitcoms more valuable in syndication. Regardless of its future in syndication, NBC is cashing in, reportedly demanding as much as $2 million per 30- second spot in the final network episode.

In a reverse of the typical pattern, the Disney-owned ESPN cable sports network (page 249) has launched (in a joint venture with Hearst) ESPN: The Magazine. The magazine is designed to compete directly with other sports magazines such as Sports Illustrated and provides yet another example of a company using a traditionally competing medium to promote and expand its core business. The new magazine is being heavily promoted on both cable network ESPN and its popular website, SportsZone. ESPN on-air talent will be among the writers featured in the magazine. The first issue ran about 185 pages, more than 100 of them carrying advertising. For more about ESPN: The Magazine check ESPNET.SportsZone.com/espnmagazine/.

In the ongoing effort to shield children from offensive content on TV, (pages 254-55 and 323-26) Principle Solutions is marketing a "cuss filter" called TV Guardian. TV Guardian checks words in a program's closed captioning signal, mutes the audio when it encounters offensive words, and then substitutes more acceptable ones on screen. Developer Rick Bray says working out the bugs was not as easy as one might think because many words are offensive only in certain contexts. An early version, for example, converted "Dick Van Dyke" to "jerk Van gay." The product is available this month in many stores and on the Home Shopping Channel for about $250.

The FCC has formally approved the TV program content ratings adopted by most of the industry (pages 254-55 and 389) and established a deadline for TV set makers to install V-chips. Manufactures have until July 1999 to install V-chips in half of all new sets with screens 13 inches or larger. All new sets 13 inches and larger must have V-chips by the year 2000. The FCC also requires computers with TV tuners to have V-chips, but not those computers that just connect to the Internet rather than receive programming over the air. Only NBC and Black Entertainment Television (BET) have refused to adopt the industry's voluntary TV program ratings system. Check www.fcc.gov/Bureaus/Cable/News_Releases/1998/nrcb8003.html for more information.

Audio and video streaming on the Internet continues to increase at a rapid rate (page 269). RealNetworks chairman/CEO Rob Glaser says the use of streamed media increases about 25 percent a month, although his company experienced a 70 percent increase during the months of October and November (1997) alone. Glaser says consumers are downloading his firm's RealPlayer software at the rate of about 600,000 copies a week. He estimates more than 35 million copies of RealPlayer have been downloaded by consumers and that RealAudio and RealVideo command 85 percent of the Internet media streaming market. RealNetworks recently increased its market share by taking over one of its competitors, Vivo Software, which served an estimated two million users. For more information about streaming technology, check www.sun.com/media/; www.real.com; and www.microsoft.com/netshow/.

Even though CBS did not get the size audience it expected for the Olympic games (see March update), the network nonetheless easily won the February sweeps (p.277). ABC, which did not counterprogram the games, ended up fourth in total viewers for the month, behind NBC and Fox. This marked the first time that Fox surpassed one of the Big Three networks in total viewers during a sweeps period.

We explained the FCC's broadcast ownership rules in section 13.6. Don't spend too much time trying to memorize them because the FCC recently announced a formal review of all broadcast ownership regulations. If the Commission determines that any of the ownership rules no longer serve the public interest, it would then commence a proceeding to eliminate or modify them. See the FCC news release at www.fcc.gov/Bureaus/Mass_Media/News_Releases/1998/nrmm8007.html

A survey of television stations found that 28% of the stations failed to comply with FCC rules on the amount of advertising time permitted in children's television (pp. 387-88). Because of this finding, the FCC announced that it would begin random audits of stations across the country in an effort to increase compliance with the rules.

One of the great men of television journalism, Fred Friendly, died last month at the age of 82. Friendly was probably best known for his partnership with Edward R. Murrow (page 42) with whom he produced such powerful programs as "Harvest of Shame," "The Population Explosion," and the series, See It Now. Friendly was president of CBS news from 1964 through 1966 when he quit because CBS scheduled a re-run of "I Love Lucy" instead of covering a Congressional hearing on the Viet Nam war. Later in his career, Friendly produced television seminars covering issues of media and ethics.