 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
Witness Testimony
Mr. Gary Shapiro
Advancing the DTV Transition: An Examination of the FCC Media Bureau Proposal
Mr. Chairman and Members of the Subcommittee: Thank you for inviting me to discuss our progress in the transition to digital television (DTV), and the steps that should be taken to conclude the transition in the most beneficial and consumer-friendly manner. I represent the Consumer Electronics Association (CEA), the principal U.S. trade association of the consumer electronics and information technology industries. Our 1,500 members include virtually every DTV manufacturer, and our products are found in 99 percent of American homes. Our members invented DTV, and DTV is very much our baby. We marveled at the miracle of birth, cheered when it took its first steps, were thrilled with its rapid growth, and now look on proudly as it matures into a popular, mainstream consumer electronics product. In fact, you could say that our one-time baby has grown up, gotten hold of the car keys and is now heading down the highway. DTV Sales Continue to Rapidly Increase Our most recent sales figures show that the first quarter of 2004 brought the greatest volume of DTV sales ever recorded, with 1.39 million monitors and integrated sets sold accounting for $2.1 billion of consumer investment. This is a remarkable 104 percent increase in unit sales from the same time period in 2003. More than 10 million DTV products have been sold since the first sets hit the market in the fourth quarter of 1998. Americans already have invested an astonishing $20 billion in DTV products, not including additional billions spent on DTV cable set top boxes and satellite receivers. As we predicted years ago, HDTV is the driver behind these phenomenal sales figures, as 87 percent of the products sold to date are HD. To put this into historical context, DTV sales already have far surpassed those of the VCR, PC, and color TV at a similar point after introduction. Indeed, overall revenues from digital TV now regularly outstrip those from analog TV. Television manufacturing now is a digital industry, and there is no going back. Consumer enthusiasm for HDTV is so strong that CEA has upwardly revised its digital television sales projections. CEA now forecasts that 5.7 million digital television units will be sold this year, 9.4 million in 2005, 15.6 million in 2006 and 23 million in 2007. As impressive as those numbers sound, we are only beginning to move up the steep "hockey stick curve" of sales. By 2010 we expect that more than 90 million DTV sets will reside in American homes. Sales of DTV products have spread from specialty retailers and major consumer electronics chains into warehouse clubs, mass merchants, and now discount stores like Wal-Mart and Target. Weekly advertisements from national and regional retailers and specialty dealers are packed with ads for DTVs of various sizes and capabilities. When consumers walk into retail stores, they now enjoy an unprecedented variety of DTV products with more than 800 models available from 60-plus manufacturers. Buyers can choose from a vast array of compelling displays from traditional CRT sets to cutting-edge new technologies like plasma, LCD, DLP, and LCOS. To be sure, the DTV category is so hot that new entrants with no previous history in television are leaping into the DTV marketplace. Companies like Gateway, Hewlett-Packard, Dell and Motorola are now seeking to surf the wave of consumer DTV enthusiasm. Sales are being driven by plummeting prices-after all, this is the consumer electronics industry. DTV prices have been steadily declining by about 10 percent per year. Today there are a host of DTV options for consumers under the magic $1,000 mark, and even some below $500. Not only do consumers have more options at lower prices, but also the latest generation DTVs offers an array of compelling, consumer-friendly features. For example, consumers now can choose from 81 models that include over-the-air ATSC tuners. An avalanche of tuners will enter the market over the next few years as manufacturers respond to the Federal Communications Commission (FCC) DTV tuner mandate beginning next months. We estimate that by 2010, 86 percent of American homes will contain TVs capable with DTV over-the-air tuners. New Digital Cable Ready Plug-and-Play DTVs Will Help Drive the Transition, So Long as CableCARDS are Readily Available to Consumers 2004 also is the year that a "plug-and-play" transition to cable DTV should become a reality for American consumers. Last fall the FCC formally adopted the Digital Cable Ready DTV agreement for a nationwide plug-and-play digital cable standard. That means that American consumers - 70 percent of whom rely on cable for their primary TV reception - will now be able to buy a DTV, and, with a local operator's CableCARD, plug the set into the cable jack in their wall and view glorious high-definition programming without a set-top box. Several models designed to accept CableCARDS are already on the market, and dozens more will be available in the second half of this year. We anticipate that these new CableCARD-ready sets will be a huge hit in the marketplace. In fact, we project that more than one million digital cable ready sets and other products will be sold over the next six or seven months. And of course, every CableCARD-ready DCR set also will include an over the air digital tuner. Starting July 1, FCC regulations require local cable operators to provide explicit support for "Plug and Play" DTVs. Since hundreds of thousands of CableCARDS - which contain security and other circuitry for particular local systems - will be necessary before football season begins, we presume the cable industry has ordered a sufficient quantity of the new cards to support the anticipated consumer demand for DCR sets, and will make them available to subscribers in a fast, simple and consumer-friendly manner. We also presume that - to the extent cable operators are permitted to and elect to charge consumers for the CableCARDS - they will be available at a reasonable price that is significantly less than that charged for a set-top box. Given the critical importance of plug-and-play to the DTV transition, we call upon cable operators to join the CE industry in aggressively promoting the use of CableCARDs and DCR sets. We urge Congress and the FCC to continue their close oversight of the rollout of digital cable ready products, and the resolution of remaining DTV-cable compatibility issues. Digital CableCARD-ready sets are not the only attractive new technology that is entering the marketplace. New products such as HDTV digital video recorders are already giving Americans even more incentive to buy digital sets and demand high definition. The Amount of Compelling HDTV Content is Increasing Of course, as much as we love our hardware, we recognize that an ample supply of compelling content is critical to DTVs success. It is no coincidence that the upsurge in DTV sales happened at the same time that the amount of content began to rapidly increase. The recent explosion of HDTV content is the result of a beneficial competitive dynamic among broadcast, cable, and satellite operators. Each realized that consumers want the best, and whoever does not provide it could wind up as the AM radio of video delivery service. One new satellite service, VOOM, is building its entire business plan around HDTV. CEA is the Leader in DTV Consumer Education CEA has embarked on an unprecedented promotional effort to ensure that consumers are fully informed about their DTV options. Our industry has every business incentive to educate consumers about the qualities and features of the DTV they want to purchase. That is why we have developed a system of voluntary labels describing DTV product capabilities that is being widely used across the industry. Most consumers today get their primary information through retailers. It is imperative that retailers are able to provide accurate and easy-to-understand information. CEA has aggressively responded to this challenge. In the last three months alone, we have visited four of the major consumer electronics buying groups and talked with more than 2,000 dealers to bring them the latest information on the DTV transition. We have generated point-of-sale materials for use in stores; including consumer guides and retailer tip sheets. We have collaborated with Comcast on an educational DVD that covers DTV information ranging from basic definitions to the equipment required to receive and view HDTV content via antenna, satellite or cable delivery. We also have launched a new retailer-training program called CEKnowHow (it can be viewed online at www.ceknowhow.com). This program is available to all retailers over the Internet. It equips them with the most up-to-date online training for sales associates, so that they can effectively respond to consumer inquiries on DTV and HDTV. CEA also is making every effort to reach out directly to consumers. Millions of readers across the country saw our recent insert in TV Guide explaining the DTV basics. We also have showcased HDTV before hundreds of thousands of consumers through exhibits at home design shows and trade exhibitions across the nation. CEA exposes millions of consumers to HDTV through our nationally pre-packaged video and news releases, as well as our national CEA media tour. And our quarterly HDTV Guide is the single most authoritative list of the DTV products and programming currently available to consumers. CEA has single-handedly taken the lead in promoting consumer awareness and use of over-the-air digital television reception. Through our AntennaWeb program, consumers can visit a website (www.antennaweb.org), enter their home address, and find the optimal outdoor television antenna for their specific location. We also see it as our obligation to recognize those who are going above and beyond the call of duty in furthering the DTV transition. Every year, our Academy of DTV Pioneers honors the best of the best in HDTV programming, reporting and retailing. And, as it should be, every year the categories get more crowded and competitive. In short, for the DTV transition, everything is moving rapidly in the right direction. Product sales continue to rise. HDTV programming continues to increase. Content delivery industries increasingly are jumping onto the HD bandwagon. Exciting new products are rolling into the marketplace. Consumer and retailer education is advancing. By almost any measure, digital television - particularly HDTV - is a marketplace success. CEA Endorses the Media Bureau's Approach with Modifications The question now facing our industry-along with this Subcommittee and the FCC-is how to bring the transition to a successful conclusion in the most beneficial and consumer-friendly manner. In particular, we believe it imperative to ensure the expeditious and certain return of the analog spectrum. The recovery of the analog spectrum will benefit consumers as it is reallocated for purposes ranging from public safety communications to exciting new services like wireless networking and Internet access. For that reason, we appreciate the FCC Media Bureau's initiative in its proposed interpretation of the Congressionally-mandated 85 percent take back trigger for reclaiming the analog TV spectrum. Although we project that more than 85 percent of American homes will contain DTV tuners by 2010, we recognize the public benefits of setting a national, fixed date for the end of analog service. However, the DTV transition is not just about recovering the analog spectrum. From the beginning it has also been about bringing a new and improved TV experience to consumers. A primary reason that broadcasters were allocated 6 MHz of spectrum in the first place was to allow them to provide their viewers with a full HDTV signal. While the Media Bureau's plan creates a nationwide transition from analog to digital over-air broadcasting on a certain date, it does not create a national digital transition for broadcast signals carried on cable, which is the delivery method for the vast majority of American viewers. Of course, the FCC recognizes that delivery of a broadcaster's digital signal in down-converted analog form is not digital TV and will not motivate consumers to buy new digital products or enable them to enjoy a new digital experience. The Media Bureau's plan trusts that market forces will motivate cable operators to carry at least the most desirable broadcast signals in digital form in order to please their subscribers. CEA agrees that current market forces appear to be pushing cable operators to carry growing numbers of broadcast channels digitally, including high definition and to a lesser extent, multicast standard definition broadcasts. However, this voluntary transition is not comprehensive, will not achieve a simultaneous nationwide digital conversion on cable, and will confuse consumers about the timing and availability of digital TV. Moreover, market forces can change rapidly in our industry, and there is no guarantee that cable operators will continue to support digital carriage even to the extent they do today. CEA therefore endorses the Media Bureau's approach as we currently understand it, but with modifications to ensure that it achieves both of the equally vital goals of recovering broadcast spectrum and completing the digital transition for the benefit of all consumers. Specifically, we recommend the following: 1. Down Conversion Deadline: Cable and DBS operators should be required to transmit all broadcasters' DTV signals digitally (i.e., rather than sending only a version that is down converted at the head-end) by January 2009. This will ensure that consumers with DTV sets will have access to digital signals. By 2009, cable operators will have had ample time to deploy digital-to-analog converters to customers with analog sets. Cable digital-to analog converters should be available in large volumes at low cost by that date. Most major cable systems will be almost completely digital by this time, given that more than 30 percent of cable customers are already subscribed to digital cable. In addition to carrying all DTV broadcast content digitally, cable operators, of course, may also choose to transmit the down converted version of the signal as well. 2. No Cable Encryption: When cable operators carry broadcast signals digitally, the broadcast signals must remain unencrypted. This will ensure that subscribers who have a digital receiver can receive broadcast digital TV without a cable operator-provided set top box or Cable CARD and with no extra fees, as is the case today for analog cable-ready TV. 3. No Material Degradation: The FCC should require that when cable operators are carrying broadcast signals digitally, they cannot reduce the sound or picture quality. All of the broadcast signal's program-related bits should be carried. In other words, if a broadcaster is making the investment to provide HDTV programming and Dolby Digital surround sound, then that is what the cable viewer should see and hear. 4. Carriage of All Free Bits: We endorse the FCC's proposal that, when cable operators are carrying the broadcast signals digitally, they must carry all the free broadcast streams, including multicast channels. It is essential that broadcaster program-related data, such as V-Chip, closed captioning, and program system information protocol (PSIP) information also be passed on to the television. Broadcasters' pay services need not be carried, consistent with the statutory exemption to must-carry that exempts ancillary or supplementary services. 5. Full Power Broadcasting: To ensure the public continues to have robust access to digital broadcast TV comparable to its access to analog broadcasts, the FCC should require all broadcasters to be on their permanent digital channels and digitally transmit at their full authorized power by January 1, 2006. While many DTV stations claim to be replicating their analog broadcast service area, according to FCC data, only 477 of the 1362 commercial broadcast stations are actually delivering a full power DTV signal. The result is that spectrum continues to be unused and yet, because it is reserved for incumbent broadcasters, others are blocked from providing DTV to unserved consumers. A full-power requirement ensures that all consumers who currently can receive an analog signal over-the-air can obtain a digital tuner and receive a digital signal over-the-air. This is particularly important as DTV manufacturers move ahead with the implementation of the FCC's over-the-air tuner requirement. 6. Ensure that All Parties Rely on the Plug-and-Play Standards: Since most consumers are cable customers, they are motivated to buy DTV products in large part by their ability to receive digital cable programming. For this reason digital cable plug-and-play compatibility is critically important to the digital transition. Our industry negotiated a set of "one way" digital plug-and-play standards and licensing terms with the cable industry, and the FCC has implemented regulations based on this agreement. Our two industries are now negotiating to add compatibility in cable systems and consumer products for two-way interactive services. We appreciate the encouragement of this Committee, and of the FCC, in that next important step to expanding digital cable-ready access by consumers. By the way, this step and future enhancements - as cable systems continue to develop their services and their infrastructures and operations - will require completion of the "two-way" CableCARD (now under development through CableLabs). This must be a "multi-stream" CableCARD which will permit multiple cable services to operate simultaneously on a DTV or computer or other cable-ready digital product. This kind of flexibility is part of what the digital revolution is all about; and consumers want and deserve a choice of such fully digital cable-ready products both from their cable operator and from independent retailers and manufacturers. However, unless the cable operators also rely on the use of CableCARD in all the equipment they acquire and provide or lease to their customers, consumers will never be sure that retail products will work on cable systems as well as the cable operators' equipment. CEA therefore recommends that the FCC maintain, if not move forward, its current requirement that cable operators also rely exclusively on CableCARDs in their new equipment starting July 1, 2006. Indeed, in whatever new equipment they provide to consumers after that date - whether themselves directly or through retail or other channels - cable operators themselves should rely solely on techniques that are made available simultaneously to competitive entrants. The FCC set this requirement in its rules in 1998. Despite having provided cable operators five years to plan and implement, the Commission last year slipped the deadline another eighteen months, to July 1, 2006. There must be no more delay. Common reliance by all parties on common technical requirements is the only way to fulfill Congress' direction to ensure a competitive retail market in cable equipment. It is the only way that consumers will see the benefit of this competition, in the choice, variety, and cost of the equipment they wish to attach to their local cable system. With these modifications, we believe that the Media Bureau's plan will successfully hasten the return of the analog spectrum and ensure that all Americans receive the full benefits of the transition to digital television. We must also deal with the fact that, under the Congressional 85 percent test, TV households that rely solely on over-the-air broadcasts will someday have to purchase a new set or a digital-to-analog converter box when the analog spectrum is returned. We applaud the FCC's recent announcement of a study on how best to ensure that consumers who depend on over-the-air broadcasting and cannot convert to digital on their own for financial reasons are not stranded when analog broadcasts are turned off. For example, one option could be a tax credit or subsidy for the purchase of a digital-to-analog converter box. One way to estimate the worst-case number of viewers who may require assistance is to consider the number of households who receive assistance with telephone service. In May 2002, FCC data showed that approximately 7.7 million households, or 7 percent, received either LifeLine or Linkup assistance. Of course, by 2008-09, the prices of simple digital-to-analog converters will be very affordable for most Americans. Congress and the FCC Can Take Additional Actions to Spur the DTV Transition In addition to the actions recommended in the Media Bureau Plan, there are other things that can be done by Congress and the FCC to move the DTV transition forward. For example, CEA endorses and urges Congress to act on the proposal allowing satellite providers to carry distant network HDTV signals in areas where local broadcasters are not providing them. Congress can do this simply by broadening the SHVIA definition of "unserved household" to include these viewers. This "digital white area" proposal would provide an incentive for the purchase of DTV sets, and would give broadcasters a strong incentive to get on the air with a full-power HDTV signal. As I noted previously, less than half of the nation's commercial broadcasters are currently providing a digital signal at full power. Viewers should not be deprived of the extraordinary HDTV experience simply because the local broadcaster is not yet offering the service, or offering it only to a reduced service area. Finally, a successful transition will require Congress and the FCC to safeguard consumers' customary viewing, recording, and time shifting rights in the digital age. CEA recognizes the right of the content industry to protect its intellectual property from commercial piracy, and our industry has developed a number of effective copy protection technologies for this purpose. At the same time, it will be difficult to convince Americans to invest in DTV if they must forfeit their reasonable viewing and recording rights as the price of moving form the analog to the digital age. For example, there now are proposals before the FCC that would allow cable operators, at the behest of Hollywood to unilaterally "downres" or remove three quarters of the pixel resolution from HDTV programming. Hollywood also is seeking permission to invoke "selectable output control" to unilaterally turn off outputs into consumers' DTV sets. Both of these measures are promoted as combating pirates, but primarily punish law-abiding consumers. Needless to say, Americans will not be eager to purchase HDTV if they understand that their viewing privileges can be revoked unilaterally, by a third party, through no fault of the consumer. We call on the FCC to reject these proposals. While these "white area" and digital rights management issues are not the primary focus of this hearing, they significantly impact the pace at which Americans will invest in DTV, and the speed at which broadcasters will be able to return their spectrum to the government. We welcome the Subcommittee's focus on these issues as its agenda allows. Conclusion Speaking personally, I have been fortunate enough to be an early adopter of DTV. For years I have watched eagerly as more compelling content has become available over broadcast, satellite and cable. Now, along with millions of Americans, I enjoy everything from "CSI" to the "Sopranos" to the "NBA Playoffs", all in brilliant high definition. All of us should be gratified to know that, within a few short years, most American households will be sharing this extraordinary DTV experience. I believe the American viewing public should join me in thanking this Subcommittee for its longstanding focus on the DTV transition as a national priority. This Subcommittee can be proud that HDTV is well on its way to being a fixture in the American living room. In closing, CEA will continue our unprecedented efforts to educate consumers and retailers about digital television. I pledge CEA's continuing commitment to working with you, the FCC and other stakeholders to ensure a speedy and consumer friendly transition, and a prompt return of the analog broadcast spectrum. Related Documents |
|||||||||||
|
