February 1999 Update

Michael McGregor & Thomas Spann

HAPPY NEW YEAR and welcome to the 1999 edition of Broadcasting in American updates. We hope you find these useful and we invite you to contact us with your comments.


CONVERGENCE AND CONSOLIDATION

Direct broadcast satellite (DBS) providers (pp. 68-69) continued to attract new subscribers last year. DirecTV led the way with more than a million new subscribers. EchoStar's Dish Network also picked up almost a million new customers, coming close to doubling its subscriber base compared to the previous year. Primestar picked up fewer than 400,000 new subscribers.

Both DirecTV and EchoStar seem poised for more growth in 1999 as the business consolidates. DirecTV will benefit from its acquisition of DBS providers USSB and Primestar, while EchoStar is picking up the assets of ASkyB, Rupert Murdoch's ill-fated venture into the U.S. satellite TV market. Primestar was initially the intended buyer of AskyB (p. 69 and Exhibit 3.i) but the Justice Department halted that sale after publication of the text because Primestar is controlled by cable interests.

Part of the growth of DBS appears to be at the expense of other multichannel service providers such as wireless cable. FCC figures through June of last summer show that while the number of DBS subscribers increased more than 40 percent the previous year, other competitors to traditional cable lost almost two million customers. You can review the FCC's data at www.fcc.gov/Bureaus/Cable/Reports/fcc98335.txt

Three huge proposed mergers are now being studied by government regulators whose approvals are necessary before the mergers can be finalized. Two of the countries largest local exchange operators, Ameritech and SBC, are seeking approval to merge. Another proposed telephone merger involves Bell Atlantic and GTE. And the third giant merger proposal involves long-distance provider AT&T; and the largest cable operator, TCI. The companies involved in these mega-deals insist that the mergers will improve efficiency and lead to better services at lower rates. Opponents of the mergers warn that increasing consolidation in the telecommunications markets will lead to less competition and monopoly pricing.


TECHNOLOGY

We've indicated a number of times that Panasonic's DVCPRO (pp. 138 and 140) is gaining ground on Sony's Betacam as the dominant electronic news gathering (ENG) tape format. A survey of chief TV news photographers conducted by the publication Television Broadcast provides additional evidence a shift is happening. Almost half (49 percent) of those responding said their station is considering an ENG format change and, of that number, 47 percent placed DVCPRO at the top of the list of candidates. Interestingly, a majority (51 percent) of the photographers still prefers Betacam SP. But Betacam SP is an analog format and most chief photographers see the need to convert to digital. And, while there are other digital formats available, most respondents said DVCPRO offers the best combination of cost and performance for ENG applications. Television Broadcasts speculates that when the National Association of Broadcasters convention is over this April there well may be a new "king" in the world of ENG and it won't be Sony.

Another note on tape formats: the Society of Motion Picture and Television Engineers (SMPTE) recently designated JVC's Digital-S format as D-9, adding to the sometimes confusing list of digital formats identified by a number. Among the technically minded, however, the numbering makes sense because it identifies a format by technical standards recognized worldwide, not by brand name. JCV also likes the designation because the company believes people will come to associate D-9 with Digital-S and JVC although other companies may make equipment meeting the D-9 specifications.

HDTV is "absolutely stunning" according to members of a small focus group in Raleigh, NC. Last November a selected group of families were provided wide-screen Panasonic HDTVs and set-top boxes allowing them to watch HD programming provided by WRAL-TV, one of the nation's pioneer DTV stations. Although impressed by HDTV's image and sound quality, most said they still would not spend the approximately $7,000 required for the equipment mostly because of its price, but also because of the limited amount of HDTV programming currently available. It's also worth noting that the participants were selected because the researcher had identified them as being "early adopters" of electronic technology or "television enthusiasts." They, therefore, may or may not reflect how "ordinary" viewers might react to HDTV.

In terms of the rollout of DTV service, Broadcasting & Cable reports that nearly 50 television stations are now broadcasting a digital signal, covering 37.4 percent of U.S. television households. Digital television set sales number around 13,500. Set prices are falling more quickly than expected, and DTV sets should be available for around $3000 by next Christmas.

Digital radio broadcasting (DAB) will take giant strides in Canada during 1999, according to the publication Radio World. If private and public broadcasters in Toronto, Vancouver and Montreal roll out the service based on the Eureka-147 system (see page 145) this year as expected, about 35 percent of Canada's population can tune in DAB signals. DAB enthusiasts in Canada say that would mean about 10 million Canadians could receive the service and that, they say, should be enough to create the "critical mass" receiver manufacturers need to justify making DAB sets in quantity.

DAB for U.S. citizens in 1999 seems less promising. Again. You'll recall our reporting that testing of the IBOC (in-band-on-channel) DAB system (Section 5.8) supported by the NAB ended when companies with competing technologies disagreed with the test procedures and pulled out. We also reported that late last year one of the competing IBOC proponents, USA Digital Radio, called on the FCC to establish rules for evaluating various IBOC systems and develop a timetable for rolling out IBOC DAB to the nation. The FCC is now considering comments on that request. Meanwhile, the digital audio broadcasting sub-committee of the NAB's National Radio Systems Committee has, apparently, agreed on new lab test guidelines for evaluating IBOC systems. The three IBOC competitors (USA Digital Radio, Lucent Digital Radio, Digital Radio Express) say they all plan to complete their field tests by end of the year. We shall see. The two U.S. firms licensed to provide digital broadcast signals via satellite. XM Satellite (formerly American Mobile Radio Corp.) and CD Radio, are moving forward to license receiver manufacturers to build compatible sets. It seems Americans will probably be able to receive DAB by satellite before terrestrial broadcasters can get their act together.


COMMERCIAL OPERATIONS

Although lagging behind the phenomenal and inexplicable stock price increases of some Internet companies such as Amazon.com, Web ad revenues grew dramatically during 1998. From less than half a billion dollars in 1997, industry analysts expect 1998 ad revenue on the Web to be about two billion dollars once all the figures are available. Ad revenue for the Web is expected to grow another 75 percent in 1999 according to a consensus estimate of analysts reported in Broadcasting & Cable.


NONCOMMERCIAL SERVICES

PBS recently announced that it will launch several new digital television services over the next few years. The first is scheduled to begin in September. Dubbed PBS Kids Channel, the 24-hour service will be targeted to children from preschool age through age 12. The channel will be made available to all PBS stations, although only a third of them plan to be broadcasting a digital signal by the end of the year.


PROGRAMMING

A few years ago a prime time hour-long network program might cost a million dollars or slightly more to produce. Given the high expectations of viewers, it now costs that much per episode to launch an hour-long action program in first-run syndication. Given the roughly $30 million it takes to produce a single season and the stiff competition from off-network programming, domestic producers increasingly need a strong commitment from distributors in the international market to justify the risks of starting a new series.

Broadcast stations are no longer the prime buyers of movie packages they once were. With four major broadcast networks and two "netlets" (The WB and UPN) more stations are getting their prime time programming from a network. Movie distributors now find it more profitable to distribute through theaters, then the video rental market, followed by the premium cable channels. Only after a run on the non-premium cable channels do movie distributors look to local stations for sales. Even then they find they have to license the product for shorter periods than before, sell the movies in smaller packages, and often offer barter deals rather than demand cash.

ABC is starting the new year by trying to pump up the ratings for its ailing Good Morning America program. GMA has been losing ground for a few years. The decline began in 1997 when Joan Lunden left the show. This season GMA continued to slide while NBC's Today gained ground. While ABC executives don't appear to have a permanent fix, they're trying to hold the line by bringing in two of the network's star personalities, Charles Gibson and Diane Sawyer. Gibson is a "natural" because he served successfully as co-host of the show for many years. Sawyer is among the top female personalities on network TV and her appearance as a co-anchor for a morning show is a bit surprising. Gibson and Sawyer aren't saying how long they will serve on GMA, but neither views the assignment as anything more than temporary while ABC works out a longer term solution. It will be interesting to see if the infusion of personality will have the desired effect.

A report on local TV news (Sections 9.8 and 11.2) released by Columbia University's Project for Excellence in Journalism gives the industry mixed reviews. The study involved looking at more than 8,000 local news stories broadcast by stations in 20 markets. Broadcast journalists were pleased the study shows most local newscasts aren't dominated by stories about crime and violence, as critics often charge. Broadcasters were less pleased by those portions of the report indicating most local newscasts lack depth and that stations the study rated as having "A" quality content did no better in the ratings race than did those getting low grades on content. Market size also did not correlate well with news quality. Stations in major markets such as New York, Pittsburgh, Seattle, and Atlanta got failing grades.

CBS has announced it is selling its cable network Eye on People (pp. 256-257) to Discovery Communications Inc. It's reported the network will be known as Discovery People and will continue to use some programming produced by CBS. CBS was the last of the major broadcast networks to move into cable and the sale of Eye on People leaves the company with only CMT (Country Music Television) and The Nashville Network on the cable side. Media analysts do not seem to agree on why the sale comes at this time, but it's apparent that CBS Chairman Mel Karmazin views it as contributing to his almost single-minded goal of increasing the value of CBS stock.


REGULATION

The FCC has given over-the-air TV broadcasters a boost by ruling that renters of condominiums and cooperative apartments may install TV antennas on their balconies, patios and other areas over which they have the right of exclusive use. The ruling does not prevent building owners from placing restrictions on the erection of antennas on areas of common use, such as rooftops.

In a very controversial move, the FCC proposed to create up to three new classes of low-power FM radio stations that could result in the creation of hundreds of new FM outlets. The stations would have service areas ranging from 8.8 miles for 100 watt stations to one or two miles for 10 watt stations. FCC Chairman Kennard sees this proposal as one that might "create a whole new class of voices who can use the airwaves." The National Association of Broadcasters opposes the proposal, arguing that that the new stations would cause harmful interference to existing services. For more information about the Commission's proposal, check out the "Hot Topics" section of the FCC web pages at http://www.fcc.gov.

We noted on pp. 373-374 of the textbook that in 1996 Congress passed a law requiring cable operators to fully block the audio and video segment of sexually oriented channels to nonsubscribers. Until such blocking could be achieved, operators were ordered to carry such channels only at night when children were less likely to be in the audience. A federal appeals court recently declared the law unconstitutional. Now sexually oriented channels can be carried by cable operators 24 hours per day.

And finally, a federal judge has permanently enjoined enforcement of the Child Online Protection Act until the constitutionality of the new law can be decided. The Act, passed by Congress last year, attempts to shield minors from sexually explicit material on the World Wide Web.