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A Million Channels

Everybody's cooking up a new distribution service, even broadcasters 1/04/2004 07:00:00 PM Eastern

It's a good thing that cable operators—at least the well-managed, well-financed ones—are plunging headlong into high-speed modems and the telephone business. Why? Because their basic business—supplying TV channels—is coming under increasing competitive pressure and TV channels are becoming a commodity. Think soybeans. It's all right there on our front page this week.

First, there's Rupert Murdoch. Now that he controls DirecTV, he will be going after cable subscribers the way Mel Karmazin goes after the last ad dollar. We talked to his lieutenant, Chase Carey, for our story. He was being polite. The Fox machine will be in attack mode. No video-only cable sub is safe.

Meanwhile, the broadcasters are stirring. The NAB, which makes that proverbial slow-to-turn oil tanker look like a Jet Ski, is investigating Freeview, the multichannel DTV service that has become something of a phenomenon in England. The NAB's new joint board chairman, Phil Lombardo, ordered the study. He wants to know whether it makes sense for broadcasters to combine their DTV channels and offer a multichannel alternative, either pay or ad-supported.

Finally, next week, the FCC will be auctioning off big gobs of spectrum for a new terrestrial microwave service. Given the state of digital compression, we are talking hundreds of channels. Cable operators may be tempted to laugh this off as the second coming of MDS. But that could be a mistake. At least one smart guy, Charlie Ergen, will be among the bidders. Charlie never met a megahertz he didn't like, and he knows how to use them.

It's Rupert and DirecTV that cable operators have to worry about most. The combination is real, and the treat is immediate.

Eddy Hartenstein did a nice job getting DirecTV off the ground. He accumulated a lot of subscribers, despite the unexpectedly fierce competition from Ergen and his Dish network. But he was basically a satellite guy thrust into a TV job.

Now at the controls are Carey and Mitch Stern, two seasoned TV executives who know a thing or two about marketing and promotion. They will use TV to sell TV. They will have much of the Fox entertainment empire to work with. Don't be surprised if the next America Idol
wins a recording contract and
a DirecTV dish.

The broadcasters' look at multichannel DTV is long overdue. They should have been on it six years ago when ABC's Preston Padden and Sinclair's David Smith publicly talked about it. Former BROADCASTING & CABLE Editor Don West and I have also advocated it. It was one of the things I felt a broadcast labs would be able to explore and develop. But the labs would have required broadcasters to put up some money and think beyond the next quarter, neither of which comes easily to them.

Think about it. Five TV stations agree to work together in a market. They cobble together a 25-channel service that mixes HDTV in prime time with local news and weather and a few national network-fed programming services. Offered free or for a modest fee, it just might persuade some folks to cut the cable tether and dig out the rabbit ears.

Nobody really knows what Ergen's intentions are with regard to the terrestrial microwave spectrum. It might be a defensive move. This spectrum is the same band as satellite TV. If Ergen buys the terrestrial spectrum, he can warehouse it, bar another multichannel competitor and insure against terrestrial interference to his satellite service.

On the other hand, Ergen could grab the spectrum and build out the terrestrial service as an adjunct to his satellite service. He could use it to deliver every local broadcast signal, analog and digital. That would cause Chase and Mitch headaches at DirecTV and solve the reception problem that multichannel-minded broadcasters have.

Others have declared their intention to bid for the terrestrial spectrum. Keep an eye on George Blumenthal. The New Yorker soared high as a cable consolidator in England before crashing under heavy debt. Maybe he has learned something about the business; maybe he is more than a spectrum speculator. Then there is Jim Goodmon. The innovative broadcaster wants the Raleigh, N.C., license.

You really can't add up all these channels because the total is a function of bandwidth and digital compression, and we don't know how many channels per megahertz digital compression will allow, other than more and more. But this new terrestrial microwave service and broadcast DTV could add hundreds of channels to the hundreds of cable and satellite channels we already have. And keep is mind that the Internet has a virtually limitless potential for TV delivery that is just beginning to be realized. As I said, soybeans. I'd put my money in content.

Jessell may be reached at
hjessell@reedbusiness.com

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