Digital Television: A Private Sector Perspective on the Transition

Subcommittee on Telecommunications and the Internet
March 15, 2001
10:00 AM
2123 Rayburn House Office Building 

Mr. Michael Willner
President
Insight Communications
810 Seventh Avenue
New York, NY, 10019

A.        INTRODUCTION

Mr. Chairman, members of the subcommittee, my name is Michael Willner.  I am President and CEO of Insight Communications, a cable company with 1.4 million customers in Illinois, Indiana, Kentucky, Ohio, and Georgia.  I also serve as Vice-Chairman of the National Cable Television Association, the industry's leading trade association which represents cable companies serving more than 90 percent of the nation's 68 million cable customers and more than 200 cable program networks.

B.        The Transition To Digital Television (DTV)

The transition to digital television is moving forward, and the cable industry is at the leading edge, as I describe below.  But there is a problem: by the broadcasters' own admission, they are not likely to meet the 2006 deadline for returning the analog TV spectrum.  By itself, this is not of great concern to cable companies like mine, since we are providing advanced digital services and meeting the needs of our customers.  However, the broadcasters have made it my problem by blaming everyone but themselves - cable companies, the FCC, TV manufacturers - for the slow pace of their move from analog to digital.  After receiving two grants of valuable public spectrum for free, broadcasters are now asking the government to redefine the must carry laws of 1992 to further regulate the cable industry: they are asking Congress and the FCC to double the must carry requirements to include both analog and digital signals, and to require the carriage of multiple digital signals, not just their primary video feed.  Cable operators and programmers strongly oppose duplicative must carry requirements.

C.        The FCC's Rulings On Digital Must Carry,  January 2001

            Broadcasters have been claiming for several years that the 1992 Cable Act mandates the simultaneous carriage of both a television station's analog signal and its digital signal (dual must carry).[1]  On January 18, 2001, the FCC tentatively concluded that such a dual carriage requirement would be unconstitutional since it "appears to burden cable operators' First Amendment interests substantially more than is necessary to further the government's substantial interests of preserving the benefits of free over-the-air local broadcast television; promoting the widespread dissemination of information from a multiplicity of sources; and promoting fair competition in the market for television programming."[2]  The FCC has asked for additional comments on its interim conclusion and will make a final decision in the months ahead.

            On January 18, 2001, the Commission also ruled that once a TV broadcaster returns its analog channel and transmits only in digital format, the 1992 must carry law gives that digital station carriage rights for only its "primary video."  According to the FCC, "primary video" means a single programming stream, along with any program-related material.  Cable operators are "not required to carry duplicative signals or video that is not considered to be primary."[3]

            Some broadcasters like Paxson Communications want to use their HDTV spectrum to multicast several standard definition digital TV signals - and to require cable carriage of all those digital broadcasts.  Indeed, Jeff Sagansky of Paxson Communications testified before the Senate Commerce Committee[4] on March 1 that HDTV was not the highest or best use of the digital spectrum - multicasting was.[5]

D.        The Problems With Digital Must Carry

            "Digital must carry" includes two related proposals: "dual must carry" (the notion argued by NAB that cable should carry both a station's analog as well as its digital signal during the transition to DTV), and "multi-channel" or "multiple must carry" (the effort led by Paxson to require cable carriage of all a broadcaster's digital signals once it has made the transition to DTV and returned its analog spectrum).  Both proposals overreach: they seek a new federal entitlement program to confiscate an additional 6MHz of cable's scarce channel capacity for programming services that do not yet exist - or may never exist.  Cable's spectrum could be put to better use depending on the quality of a broadcaster's digital programming, the availability of alternative digital services, and the needs of consumers.

            All cable systems have finite capacity - whether they are old 350-450 MHz systems or new 550-860 MHz interactive facilities.  As such, federal mandates to reserve channel capacity for broadcasters necessitate trade-offs that negatively impact consumers: the more broadcast channels cable operators are required to carry, the fewer cable networks or alternative digital services they can offer.  In addition to traditional analog video services, cable operators are deploying digital video services, which have already attracted 10 million customers.  Cable companies are also offering high-speed access to the Internet, with 4 million customers to date.  And cable companies have begun offering telephone service in competition to local exchange companies - just as Congress intended when it passed the Telecommunications Act of 1996 (cable currently has 1 million residential phone customers).  These services - and new ones still in development - all take bandwidth.  Any space allocated to broadcasters for duplicative digital signals means less bandwidth for other services that consumers might prefer.  The mere availability of cable capacity is not an adequate rationale for government to favor one set of speakers - the broadcasters - over another -cable operators and programmers - by expropriating more channel capacity for the same broadcasters who are already carried on cable.

            Most commentators agree that what will drive the purchase of HDTV sets and the transition to digital is the availability of compelling, high-quality digital programming.  By demanding digital must carry, the broadcasters are in essence asking Congress to take the risk out of their business and remove their burden of developing innovative digital programming that cable operators would want to offer to their customers through voluntary carriage agreements.  Broadcast stations are asking the government to ensure their success by warehousing 6MHz of digital spectrum on cable systems for their future use.

            By demanding 12MHz of cable's spectrum for both their analog and digital signals, broadcasters will:

·        Reduce  consumer choice by:

Ø      Decreasing space for new channels of both analog and digital video; and

Ø      Limiting space for existing digital services like high speed Internet access and reducing space for new services like interactive TV, switched telephony, and IP telephony.

·        Harm cable programmers by limiting their ability to get onto cable and satellite systems.

Ø      There are currently 224 national programming networks, all of which would like to be carried on any given cable system in addition to local broadcasters.

            Aside from their practical problems, the policy problems with the broadcasters' demands for digital must carry include:

·        Broadcasters are offering little high definition programming - just a standard digital version of their analog programming.  Dual must carry of an analog channel and its standard definition digital counterpart would give the public nothing new but would consume valuable cable capacity.  This would reduce the diversity of programming on cable systems and limit the number of new voices getting onto cable systems in favor of redundant broadcast voices.

·        On average, only 200 MHz of an upgraded 750 MHz cable system is digital - 200 MHz for all the new digital services: new cable programming services, cable modem service, video-on-demand, cable telephony, and services yet to be created.  These new services are precisely the kind of facilities-based competition Congress intended when it passed the 1996 Telecommunications Act.

·        There is no public policy reason why two signals of every broadcast station - and all broadcasters as a whole - should get preferential carriage over each and every cable network.  There certainly is a Constitutional problem under the First Amendment with a requirement that favors one category of speakers over another.

·        A double dose of must carry will bring consumers more of the same, and less of anything new.  Consumers will be unhappy when their cable operator is forced to drop cable networks in order to carry duplicate broadcast channels, or if their operator is unable to provide new services and access to new cable networks.  Every cable channel that is used to carry these duplicate broadcast services is one that cannot be used for other purposes like offering high speed access to the Internet, interactive television, or video-on-demand.

E.         Cable Is Leading The Transition To Digital Television

Insight Communications has been an industry leader in the development of new advanced services.  By virtue of our investment (more than $500 million since passage of the 1996 Telecommunications Act), my company has:

·        added scores of new channels;

·        developed interactive community news and information platforms;

·        created video-on-demand services which electronically deliver up to 500 movie titles viewable whenever our customers want, with full VCR functionality;

·        made plans to open an electronic mall with 50 retail outlets;

·        delivered lightening-fast Internet access; and

·        launched our first facilities-based telephone service, thus offering consumers a choice of local phone carriers.

Not surprisingly, in less than a year's time, over 20 percent of Insight's customers have signed up for digital packages.  And cable subscribers nationwide are offering similar services.

The cable industry has been a leader in the transition to digital and has taken on this role without government mandates or subsidies.  Cable has moved into the digital world with great speed not because anyone told us to but because our customers want us to.  Cable operators and programmers are working in a number of areas to ensure cable customers have access to new and unique digital services, such as:

·        Cable plant upgrades that allow operators to offer new digital services;

·        Creation of unique digital and high definition cable programming;

·        Negotiation of retransmission consent agreements to make digital broadcast programming available to cable customers - including PBS; and

·        Agreement between the cable industry and the consumer electronics industry to ensure digital TV sets work with cable systems.

Each of these areas is discussed in more detail below.

1.         Cable Industry Upgrades

Cable operators have invested more than $42 billion since 1996 to upgrade their facilities in order to offer consumers new services, including digital cable.  Digital video service provides increased channel capacity through compression of multiple digital video signals in the same 6 MHz slot previously occupied by a single analog channel.  As a result, cable customers are able to receive dozens of new programming services.

Consumers are responding by signing up for digital tiers in record numbers.  To date, cable systems have attracted about 10 million digital customers.  A survey released in March 2000 by the Cable and Telecommunications Association for Marketing (CTAM) showed impressive positive customer response to their upgraded, digital cable offerings.  Of nearly 2,600 consumers polled, 95 percent expressed satisfaction with their service.[6]

2.         Cable's New Digital and High Definition Programming

Program networks have already launched some 60 new digital channels offering consumers additional choice and further program diversity.  Examples include the Biography Channel and History Channel International (from A&E); Science, Civilization, and Kids (from Discovery); Noggin, Nick Too, and Nickelodeon Games & Sports (from Nickelodeon); and style. (from E!).  There are six new Hispanic channels from Liberty Cañales, new music channels from MTV and BET, and separate channels targeting Indian, Italian, Arabic, Filipino, French, South Asian and Chinese viewers from The International Channel.  There are also many new premium offerings from HBO (HBO Family, ActionMAX, and ThrillerMAX), Showtime (Showtime Extreme, Showtime Beyond) and Starz! Encore (Starz! Family, Cinema, Movies for the Soul, Adventure Zone).

Cable programmers are also leading the way in the development of HDTV programming.  For example, HBO is offering more HDTV programming in any given week than all of the broadcast networks combined.  Showtime, Madison Square Garden, A&E, and Discovery are also producing high definition programming.  This is just the kind of high quality programming that will facilitate the transition to digital by enticing people to buy DTV sets.

            3.         Negotiation of Voluntary Retransmission Consent Agreements

                        with Broadcasters for Carriage of  their Digital Signals - Including PBS

            The facts belie the broadcasters' claim that further government mandates are necessary.  The marketplace is working to resolve digital carriage issues.  The cable industry will carry the broadcasters' primary digital signals at the end of the transition, and will continue to carry their analog signals during the transition.  No broadcaster will lose its voice, nor will any consumer lose access to his or her favorite broadcast channels.

            In addition, major multiple system operators (MSOs) have entered into retransmission consent agreements with some broadcast station owners to carry digital broadcast programming during the transition.  For example, AOL Time Warner has entered into comprehensive agreements for carriage of the digital signals of the four major broadcast networks, several station group owners, and a large group of public broadcasters.  AT&T has digital carriage agreements with Fox and NBC, and continues discussions with other broadcasters.  Other negotiations are underway between broadcast and cable companies and are likely to yield additional agreements for the carriage of broadcast stations' digital signals on cable systems.

            Like all aspects of the digital transition, these discussions take time.[7]  But, the marketplace is working to resolve the digital carriage issue.  A government-imposed digital must carry rule will in no way provide consumers with an incentive to buy new digital television sets.  Instead of arguing for such a requirement, broadcasters can provide this incentive by developing distinct and compelling programming that consumers want to watch.  The retransmission consent agreements that have been reached and the ongoing discussions between cable and broadcast companies validate the observation that - as cable companies add channel capacity, and as broadcasters develop specific digital programming that consumers want - cable companies will carry such programming.[8]

4.         Cable Has Reached Agreement with the Consumer Electronics Industry

on Compatibility and Interoperability Issues

            Another area where progress has been made to ensure a smooth transition to digital is the compatibility between cable systems, set-top boxes, and digital television (DTV) sets.  The cable industry has addressed the issue of compatibility, and solutions are available.  Cable systems deliver high definition digital signals to DTV sets by using so-called "component analog" connectors between a cable set-top box and a DTV set.  In some cases, content providers may require copy protection before they will make high quality digital programming available to cable.

            There are two approaches by which DTV sets can be connected to cable with adequate copy protection and security.  First, an HDTV-capable set-top box can be connected to a DTV using a digital interface or connection, such as a "1394/5C"[9] or functionally equivalent digital link.  This digital link will include copy protection technology to ensure that the digital signals cannot be pirated as they cross between the set-top box and the DTV set.  Second, the functionality of the set-top box can be incorporated within the digital television itself.  Using this approach, the DTV set connects directly to the cable system without the need of a set-top box.  Since there is no set-top box and, therefore, no extended connection to the DTV set, there is no opportunity for the digital signal to be stolen and copied.

Both of these approaches required inter-industry technical discussions and consensus.  The cable and consumer electronics industries worked diligently to resolve these outstanding technical issues.  In December 1998, the cable industry and the Consumer Electronics Association (CEA) agreed to the necessary changes in the IEEE 1394 specification to promote compatibility between digital television receivers and digital set-top boxes.[10]

Beginning in July 1999, the cable and consumer electronics industries conducted a series of joint meetings to address additional compatibility issues between cable systems and consumer electronics equipment.  As a result of these meetings, three significant agreements were reached.

On February 23, 2000, CEA and NCTA announced two voluntary agreements to allow future consumer digital television sets and digital cable systems to work together.  The agreements detail the technical specifications that will enable consumers to receive DTV programming and services over cable systems.[11]

The first agreement details the technical specifications that will allow DTV receivers to connect to cable television systems.  This agreement assures a cable customer who buys a DTV set that the set can be connected directly to his or her cable outlet.  The second agreement spells out how systems will transmit Program and System Information Protocol ("PSIP") data - the raw material provided by broadcasters and cable programmers that is used to make up electronic program guides created in a TV set.

These two technical agreements allow manufacturers to proceed with the production of digital TV receivers built to the agreed-upon technical specifications.[12]

            On May 24, 2000, NCTA and CEA announced a third agreement to aid consumers in their purchase of new digital television equipment.  This agreement established the labeling to be used to inform consumers about various digital television sets' capabilities to receive digital and interactive digital TV services.  However, on September 15, 2000, the FCC, acting on a number of issues regarding cable and the digital television transition, instead required a different set of labels - using the term "cable ready"[13] - for digital television sets to indicate their capability to operate with cable television systems.

F.         Cable Companies - Not Broadcasters - Are Providing Public Service Programming as Broadcast Networks and their Affiliates Abandon Political Coverage and Children's Television.

The evidence shows that it is cable, not broadcast television, that is playing an increasingly prominent role in providing public interest programming - particularly news and public affairs - and in serving the needs and interests of children.  For example:

·        Local and regional cable news channels like News 12 Connecticut and News 8 Austin are providing their communities with up-to-the-minute news and information 24 hours a day.  As reported in Electronic Media, "[local cable news channels] are making inroads against the larger and more entrenched news operations of local television stations."[14]

·        Once again last year, cable news and public affairs networks were the place to turn for in-depth coverage of local and national elections.  According to The Wall Street Journal (9/20/00), "Cable television is emerging as the new king of TV-campaign coverage . as the three major broadcast networks have scaled back news on the presidential race."  CNN, CNBC, MSNBC, FOX News, and C-SPAN are the places more and more Americans now turn for campaign news.

·        The evidence is undeniable that broadcasters are retreating from serving the local and public interest.  As former New York Times Executive Editor Max Frankel reported in The Columbia Journalism Review, commercial broadcast network coverage of each national political convention was only about 12 hours in 2000 compared with nearly 30 hours in 1996 and almost 50 hours in 1976.  And during the 2000 election cycle, only two out of the four commercial broadcast networks televised the first Presidential Debate.

In addition to filling the political news hole left by the broadcast networks, cable also provides more than three times as much children's programming as all other programming sources combined.  Nickelodeon, Disney, Noggin, and Discovery Networks are but a few of the places that consumers today turn for quality children's programming.

While the broadcasters continue to enjoy free use of the public spectrum, it is the cable industry - without government protection or favors - that is fulfilling the public interest obligations which broadcasters have abdicated.

G.        Conclusion

Cable opposes the broadcasters' call for digital must carry because it represents an unwarranted intrusion in the market that would deprive consumers of broadband services they want.  After promising to deploy HDTV in return for a second 6MHz of free spectrum (which the government could have auctioned to wireless companies for billions of dollars, benefiting both competition and the federal treasury), broadcasters have abandoned, for the most part, their promise to deploy HDTV.  While they wonder what to do with their second 6MHz of public spectrum, they are asking the government to guarantee the success of their still-to-be-determined businesses by expropriating a large swath of newly created bandwidth that cable operators have just spent billions of dollars to upgrade.

The broadcast industry's demands fly in the face of the Constitution (especially the First Amendment guaranteeing free speech for cable programmers and cable operators, and the Fifth Amendment prohibiting takings) and stand in stark contrast to the broadcasters' calls for Congress to further deregulate their own industry.  How do broadcasters reconcile their demand for expanded must carry requirements and passage of a Digital All-Channel Receiver Act with their advocacy of no public interest obligations for their digital spectrum, no further children's television requirements, no free time mandates for political candidates, no return to the Fairness Doctrine, no EEO obligations, no license renewal requirements, no ownership caps; no cross-ownership restrictions, and no criticism of their declining coverage of national elections?

It is time for the broadcast industry to stop blaming others and start taking responsibility - as the cable industry has done - for making its own transition to digital successful.  If broadcasters want to hasten this transition, they should commit their energies to developing compelling digital programming that viewers want to watch.[15]

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