Running Out of Air

Two ambitious broadcasters fight to keep the wireless-cable dream alive

Last winter, Jeff Smulyan rallied broadcasters around a plan he claimed was nothing short of the financial salvation of the local-television business. The Emmis Communications CEO believes he has solved a major puzzle facing the owners of all TV stations: how to make money from their digital-TV signals.

USDTV CEO Steve Lindsley followed a similar business idea and actually put his venture on the air. Lindsley proclaimed he would quickly roll out service across the country after the first three cities.

A year later, Smulyan's project has yet to get off the ground; Lindsley's is on the rocks.

The idea sure seemed clever: Broadcast TV can become wireless cable. As the TV business converts to digital technology, stations can broadcast a primary video feed and have spare capacity for another three to five channels. TV stations would then pool their spare capacity to create a mini wireless cable system. Subscribers with a special set-top box could see a dozen or so cable channels—plus all the local digital-broadcast services, even if they don't have a high-priced digital TV.

Most-popular channels

The executives contend that, as cable and DBS operators add channels to justify rate hikes, they are overshooting a big chunk of the market. Many low-end video homes don't want to pay $40 or more for dozens of channels, only a handful of which they watch regularly. The price for broadcast wireless cable would be just $20-$25 for the most popular cable channels.

The financial kick for stations would be getting paid for leasing their spectrum. That money would blunt the steady erosion of local- TV advertising dollars by cable.

So far, it has been tough. USDTV has stalled out. Low on cash, the company has pretty much halted advertising, which, in turn, has slowed subscriber growth.

“It has taken us a lot of time to secure the money,” says Lindsley, former president of Bonneville Broadcasting's Salt Lake City NBC affiliate, KSL-TV. But he continues to express confidence and says that he's weeks away from securing equity from three broadcasters. Industry executives say that LIN Television and Hearst-Argyle are part of that group.

Smulyan—whose Emmis owns both TV and radio stations—has had no success in his primary quest: securing support from the Big Four networks, which he sees as essential to forging an industrywide coalition. “We've had great discussions all through the industry,” Smulyan says, but “until it happens, it hasn't happened.”

Pressed by other broadcasters, USDTV and Smulyan have talked about combining, but the talks went nowhere.

Networks aren't convinced that this broadcast wireless cable is the answer. Network executives say NBC is willing to toss in a couple of stations but no money. CBS is riveted on offering more HD, not me-too cable. ABC is hesitant but more receptive since its Moviebeam movies-on-demand venture has stalled out.

Enthusiam for the concept today is much less than the ventures generated last spring. Smulyan took the stage at last April's National Association of Broadcasters convention flanked by a dozen broadcasters who supported—but didn't necessarily fund—his proposal.

Weeks later, Lindsley proclaimed that USDTV would expand from its original three markets—Salt Lake City, Las Vegas and Albuquerque, N.M.—to 30 by year's end. As recently as September, the company was still planning to light up 10 more cities. The actual number of markets added: zero.

Subscriber growth in the three original markets has been slow. The company signed up its 10,000th customer in September. Since then, it has added just 1,000 more.

No aggressive marketing

In the oldest system, Salt Lake City, USDTV signed up 2,000 subscribers in its first month but only 3,000 in the subsequent 10 months. That's just 300 new customers per month.

“We haven't been aggressively marketing for several months now,” Lindsley says. Sales efforts have been limited largely to kiosks in the electronics department of Wal-Mart. (USDTV's major backer is a fund started by former Wal-Mart executives who got rich on the giant retailer's stock options.)

Lindsley says getting a system on the air is relatively cheap. Since broadcasters already have transmitters and towers, additional satellite downlinks and encryption run just $200,000 or so. The big cost is marketing and getting set-tops into each home. USDTV slashed the price of its box from $99 last March to just $20.

Lindsley says he initially thought a national buildout would cost $750 million; that has been scaled back to $350 million. But that doesn't sound like enough. I estimate that the company could need as much as $90 million for its first three markets alone, without adding another new market.

Looking backward

I see one other thing Smulyan and Lindsley have in common: They're looking backward. Their plans echo the early 1990s, when a flurry of wireless-cable efforts took on cable, then crashed and burned. Backed by giant telephone companies, those companies built micro­wave systems in markets from New York to Los Angeles. They all flamed out, losing billions of dollars.

The new broadcast cable systems have critical advantages over their predecessors. First, they don't have to build towers. Second, the set-tops are a lot cheaper than in 1993. But the systems are using advanced technology to fight a fight that failed 10 years ago.

Smulyan acknowledges the philosophical point, then counters, “But what are the alternatives?”

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