Emerging Trends: Broadcasters Respond to the Challenges of HDTV and Digital Transmission Communications Federal, state and local rules typically lag behind, sometimes far behind, new developments in technology. Such is the case with advancements in television broadcasting, such as High Definition Television (HDTV). Earlier Clifford M. Harrington this month, the National Association of Broadcasters unveiled two basic 202.663.8525 digital converter prototypes that will make it possible for the approximately [email protected] 20 million American consumers who don’t own or can’t afford to buy HDTV-compatible systems to still receive an HDTV signal when all network, cable and local stations switch over from analog to digital on February 17, 2009. These prototypes will be rolled out in electronics and department stores in January, at an expected cost of about $50 to $70. In the following Q&A, Clifford M. Harrington, who heads the Communications Practice at Pillsbury Winthrop Shaw Pittman, discusses how new federal laws enacted by the Federal Communications Commission (FCC) related to HDTV are affecting virtually every consumer, as well as redefining the television industry. Q: What’s happening in the world of television technology? Harrington: Anyone who walks into a consumer electronics showroom has seen the public face of HDTV: high resolution digital images on often enormous flat screens. But HDTV is just one benefit of the new digital transmission system that is being adopted by the American television industry. Digital television will also permit multicasting—the simultaneous broadcast by a single station of several Standard Definition program streams of equal or better quality than current television signals. Broad- casters, multichannel video programming distributors, and program producers will have to decide whether to produce and distribute programs of the highest visual quality using the HDTV format, or to increase program offerings to the public by multicasting Standard Definition programming. Q: What does this technological advancement have to do with the law? Harrington: The FCC began work on a new television system to provide HDTV in 1987, and adopted the digital transmission standard in 1996. It ATTORNEY ADVERTISING. RESULTS subsequently granted almost all television stations a second transmission DEPEND ON A NUMBER OF FACTORS channel on which to commence digital broadcasts. Rules encouraged UNIQUE TO EACH MATTER. PRIOR stations to simulcast programming on both their analog and digital channels. RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. On February 17, 2009, analog broadcasting will be phased out completely, and broadcasters will be required to relinquish one of their two channels. © 2007 Pillsbury Winthrop Shaw Pittman. All rights reserved. Lawyers in our Communications section have been working with our 1540 Broadway | New York, NY 10036 www.pillsburylaw.com Emerging Trends: broadcast clients from the beginning to plan for and implement this transition, including obtaining the necessary FCC and other government Broadcasters Respond authorizations and negotiating contracts. to the Challenges of We have also advised consumer electronics companies as to the impact HDTV and Digital of the digital transition. In order to encourage this transition, the FCC put Transmission into effect a timetable to phase out the marketing of analog television sets. As of March 1, analog sets can no longer be manufactured, imported or distributed within the U.S., and retailers are now clearing out their inventories of analog sets. To protect consumers, the FCC is requiring all analog sets being sold at this time to have a conspicuous warning label regarding their incompatibility with the digital transmission system, and that analog transmission will end in early 2009. Citations have already been issued to Best Buy, Circuit City, Radio Shack and Target for failure to On February 17, 2009, analog display such advisories on the analog sets being sold in those stores. The broadcasting will be phased out citations warn of an $11,000 fine per violation for future violations—that’s completely, and broadcasters $11,000 per set per day. will be required to relinquish Concerned that some consumers may be left behind in this transition, one of their two channels. Congress has allocated funds for a voucher program to be administered Lawyers in our Communications by the National Telecommunications and Information Administration section have been working with (NTIA). NTIA will issue households up to two $40 coupons to defray part our broadcast clients from the of the cost of purchasing converter boxes that will allow digital signals to beginning to plan for and be received and displayed on existing analog sets, although without the implement this transition, wide screen, picture quality and other benefits of HDTV. It is anticipated including obtaining the neces- that analog sets connected to cable and satellite receivers will not need sary FCC and other government converter boxes, but for the many homes that rely on over-the-air reception authorizations and negotiating for some or all of their sets, the only option will be either new digital sets contracts. or digital-to-analog converters. RCA and LG unveiled the first prototype converters on June 6, 2007, but they are not expected to be available to consumers until early 2008. Q: What are some of the other implications of these changes at the FCC? Harrington: While television stations will use the same amount of spectrum for their digital transmissions as they have for analog transmissions, the digital transmissions are much less susceptible to interference from transmissions on other channels, and therefore television channels may be allocated on a much closer spacing than in the past. Thus, transitioning to high-definition broadcasting will free up numerous frequencies and the government will auction those off to the highest bidder. Those auctions are expected to bring in billions of dollars in federal revenues as the FCC squeezes down the spectrum and allows for hundreds, if not thousands, of new spectrum users. Broadcasters who operate digital TV stations will be able to transmit more than one stream per channel—effectively allowing them to broadcast two or three kinds of programs per channel at the same time. That, of course, depends on which digital broadcast mode they choose: standard defini- tion, widescreen or high definition, each of which take up varying amounts of bandwidth. High definition, of course, offers the very best in quality and much better sound than the other two modes—what we call the “wow” factor. But it occupies only a portion of the available digital bit stream. 2 Q: What does digital transmission mean for broadcasters? Harrington: From a business standpoint, broadcasters who are able to transmit more than one program per band stand to make more money. That’s because they are able to customize their programming to smaller groups of consumers. For example, providing programs for 25-35 year-old men may draw more viewers in this demographic to the station and more advertisers, such as sports car manufacturers, to those channels. For 40 years, three networks dominated programming and each were designed to appeal to wide audiences. Today, broadcasting to narrower and narrower audiences is the name of the game. It allows broadcasters and advertisers to tailor their programs and directly target the consumers they think will be most interested in their products and services. So, these days, broadcasters want to provide as many choices as possible. For broadcasters, the key is For broadcasters, the key is to make sure they are not simply dividing the to make sure they are not same revenue pie into smaller and smaller slices. They must add value to simply dividing the same grow the total amount of revenue available. revenue pie into smaller and smaller slices. They must add Q: How is the industry reacting to all of this? value to grow the total amount Harrington: Because the new digital system is incompatible with most of of revenue available. the equipment presently used to create and distribute the analog signals consumers have enjoyed since the 1940s, America’s television broadcasters are investing billions of dollars to complete the transition from analog to digital. Stations will need new transmitters, towers and antennas, studios, cameras and other equipment. It can cost millions of dollars for even the smallest broadcasters. Most have begun providing some high-definition signals to their communities, and every week more local stations are producing news and other local programming in HDTV. Some stations in small and mid-sized markets that are concluding they just can’t justify the costs, are investigating the possibility of sharing high-tech facilities with other broadcasters, as long as they keep their sales and programming separate. Smaller stations are also thinking about outsourcing broadcasting to high-tech providers, all of which will require careful negotiations and new contract provisions. But what has kept our practice very busy—and will continue to do so for the next 18 months— are the numerous deadlines the FCC has set to fully implement digital broadcasting. Also, it’s likely that the dynamic in the television industry is changing to such an extent that the transition will drive significant changes in ownership and management of stations, particularly in smaller markets. Because of the unique issues involved, experienced communications counsel play a major role in virtually all broadcast station sales, and we anticipate a high level of transactional work for the next several years. Expect, too, that those changes will not remain static. We should see many changes along the way as the FCC and the industry embrace the concept of HDTV and digital television. 3 Pillsbury Winthrop Shaw Pittman has one of the most prominent Commu- nications practices in the U.S., representing hundreds of radio and television stations nationwide, as well as domestic and international satellite operators, wireline and wireless telecommunications and data service providers, Internet companies, and other businesses with communications needs.