More U.S. Households Rely on TV Broadcasts

In a recent letter to the FCC (as reported by TV Technology), head of the National Association of Broadcasters (NAB) Gordon Smith cited new figures about over-the-air television in the U.S. in support of his statement about the FCC auction of part of the TV radio signal spectrum.

According to his statement, the portion of U.S. television households that rely solely on free broadcasts has grown to almost 18%. In a separate blog post, Smith mentions a study by GfK Media, nearly 7 million more viewers dropped their subscription services bringing the total who watch over-the-air exclusively has risen to more than 20 million.

If the subscription services are losing customers, it is probably due to a combination of cost-cutting by consumers and a switch to online-streaming sources over broadband Internet connections. It may be impossible to separate the two, but I expect that tight finances is probably the larger factor.

Whatever the reason, we cannot ignore the need for broadcast television for a significant portion of the population. Any reform of the free over-the-air system and reassignment of spectrum is going to have to preserve these services for those who cannot afford or choose not to pay for access to the information that these broadcasters provide.

Supreme Court Throws Out FOX and ABC Sanctions

The FCC suffered a bit of an “enforcement malfunction” yesterday when the Supreme Court threw out sanctions against ABC and FOX. Disney had been hit with a $1.2 million penalty for nudity in an “NYPD Blue” episode on ABC, while FOX was warned about expletives that were uttered on the air during two live award show broadcasts.

The Supreme Court decision did not address the overall issue concerning the constitionality of the FCC’s indecency rules. Instead, it took a much more narrow view, ruling that the agency did not give the networks fair warning about the “fleeting expletive” rules, which were announced after the incidents in question.

The decision may also lead to the elimination of the FCC’s half-million dollar fine against NBC for the infamous Janet Jackson halftime incident at the SuperBowl.

The decision does put a nick in the FCC’s enforcement sword, though it might have been worse had the Court extended the judgment to consider the First Ammendment free speech issues that could be drawn into the discussion. For now, it appears that broadcast television will continue to be held to higher standards of “decency” than content on channels that are only available on subscription services such as cable and satellite.

I suspect that this not the last we hear of this argument, however. The FCC has a backlog of 1.5 million complaints about indecent content in broadcasts, and is mandated by Congress to protect young viewers from inappropriate content. On the other hand, the broadcast networks chafe at facing enforcement actions that do not apply to the cable channels. So you can expect that this issue will likely come before the Supreme Court again before long.

You may have noticed a new look to the HDTV Almanac. This is way overdue, but was prompted by an upgrade to a new version of the WordPress software that caused our ancient files to format incorrectly. We’ve still got some tweaks to work out, so please ignore the extra noise and sawdust while we complete the remodelling. And if you have any questions or comments, feel free to write to me at alfred@hdtvprofessor.com.

Net Neutrality: Justice Department Investigates Cable

The Wall Street Journal reported that the U.S. Justice Department has launched an investigation into cable television company practices, especially as they relate to streaming online video from sources such as Netflix and Hulu. One focus of the agency’s concerns is the fact that some cable companies are imposing data caps on subscriber usage of broadband network connections. In particular, the Justice Department is probing Comcast’s preferential treatment of its own Xfinity content streamed over a Microsoft XBox. The company contends that it treats all Internet data equally, but does not count the Xfinity content towards a subscriber’s data usage because the data is streamed just within Comcast’s own private network.

The Justice Department is concerned that this practice violates Comcast’s agreement that it would not “unreasonably discriminate” against streaming data from other companies.

According to the WSJ article, Justice is also looking into the emerging practice of authentication as part of the “TV Everywhere” initiatives by cable and satellite services. The idea is that viewers who subscribe to a package of channels using these services would then be able to access some of that content over the Internet using a computer or mobile device. The Justice Department is concerned that this may be an anti-competitive practice because it requires the user to subscribe to a bundle of products in order to access the online content. This prevents users from subscribing to just an online version of the available content.

Both avenues of investigation have important implications for the future of subscription television services. If the cable companies are allowed to selectively apply data caps to content delivered by competitors — such as Hulu and Netflix — it could make it much more difficult for those online outlets to succeed. On the other hand, if the agency decides that subscription television services have to open up their online streaming content to viewers who do not subscribe to their cable or satellite plans, this could hasten a la carte pricing and result in drastic changes in the market for these companies.

Here’s a video on this story from the WSJ site:

Alfred Poor on Video about HDTV

Yesterday, I had the pleasure of discussing HDTV and related topics with David Gewirtz of ZDNet, which he captured on video. We covered a wide range of topics, including OLED HDTVs, 3DTV, screen sizes, Smart TVs, and “direct LED” TVs. The video runs almost a full hour and was made during a Skype video call. (David has invested a lot of time and effort to develop a pretty sophisticated “Skype Studio” for recording interviews like this, and he gets some impressive results.)

So here’s the video if you want to hear more about my latest thoughts about buying HDTVs. If you or someone you know are thinking about getting a new set, you’ll probably find some helpful information here.

If you have any questions, you can email me at alfred@hdtvprofessor.com or send a Twitter message to @AlfredPoor.

Cable Loses; Telco Wins; SatTV Draws

The Leichtman Research Group, Inc. (LRG) recently reported on the pay television service subscriber counts for 2011. The numbers have not really changed much compared with 2010. The big losers continue to be the cable companies; the top 10 U.S. cable services lost more than 1.6 million subscribers in 2011. The telco services (Verizon’s FiOS and AT&T’s U-verse) picked up the lion’s share of the gains, splitting 1.5 million new video customers. The results were mixed for satellite TV services; according to LRG, DirecTV added more than 660,000 subscribers, but DISH Network dropped more than 160,000 from its rolls.

This trend is not good for cable. In a flat housing market, they continue to lose subscribers to the other services. Based on LRG’s numbers, Comcast lost about 2% of its total subscribers, Time Warner lost 4%, and Charter lost a significant 5% of its customers. It would appear that these companies will have to find a way to offer a better bargain. Maybe it will be to focus on delivering broadband services, or maybe they will be forced to offer subscription options that let viewers stop paying for all the channels that they never watch.

If there is any good news in all this, it is that the total number of pay TV subscribers increased by a modest 380,000 in 2011, in spite of the growth of streaming video over the Internet and the “cord cutting” movement.

Olympic Online Coverage Will Include Every Event

NBC will cover all 302 of the Summer Olympic medal events this summer and you can watch them all online. Well, you probably can. The coverage is only available to those viewers who already have a subscription to a cable, satellite, or telco service that includes CNBC and MSNBC. But if you have a subscription, you’ll be able to watch on your computer as well as many smartphones and tablets. With an estimated 3,500 hours of coverage in all, even the most die-hard sports fan is likely to get enough of the Olympics.

This is an interesting development. There have been rumors about Hulu requiring “validation” from television subscribers, and if that works out for its owners (which own traditional broadcast networks themselves), we can expect to see more restrictions of this sort from sites that provide “free” access to major network and movie studio content.

The Return of Google TV!

According to a Reuters report, LG is going to start shipping televisions based on the Google TV platform before the end of May. Manufacturing of the sets is slated to begin May 17 in Mexico.

This is Round 2 for Google TV which drew a lot of interest before it put on the brakes and asked partners not to show products with it at CES 2011. This next version has a solid set of partners, including Samsung, Sony, and VIZIO in addition to LG. It remains to be seen whether the new interface is enough to make the feature a selling point. The platform should make it easier to search for and discover content across a number of sources, and it will also offer special features for DISH Network subscribers.

Clearly, Smart TVs are appealing to U.S. consumers as the attach rate of television sets to the Internet is climbing steadily. Whether or not Google TV offers enough “special sauce” to make it stand out from all the other connected options remains a question that probably won’t be answered until Google TV sets become available from the other manufacturers.

Will Hulu Require a Cable Subscription?

Hulu has made some sizeable waves in the television industry pond. The service makes “catch-up” episodes of current television shows available for free; all you have to do is sign up and endure a relatively few commercial interruptions during the show. (The service also has an extensive list of old show episodes and some mediocre movies, but those don’t seem to get as much attention as the current shows.) The fascinating detail about Hulu is that it is owned by News Corp (which owns the FOX networks) and Disney (which owns ABC), and Comcast (which owns NBC). Somehow these three network owners have created a tiger that they now hold by the tail, trying to figure out what to do with it.

So now the New York Post has published a story that Hulu may start requiring its users to log on using their cable or satellite television subscription account information in order to access some of the content that’s available on the site. (Yes, the Post is also owned by News Corp.) In the industry parlance, this is known as “authentication.” I don’t usually spend much time discussing rumors, but this one appears to have stirred up a lot of debate. Some even predict doomsday scenarios if such a practice should come into effect. After all, it is the people who don’t want to have a cable bill who have made Hulu a success, right?

Well, I don’t think the sky is falling yet. First, 80% to 90% of U.S. television watching households already have a subscription to a television service. If you’re looking to drop that and replace it with Hulu, then yes, we have a problem. But most people use Hulu like a super-DVR of sorts, where you can decide to watch a recent episode of a show even if you forgot to record it.

Keep in mind that streaming video over the Internet is new, and the networks aren’t sure what to do to replace the money that they’ve lost due to declining advertising revenues. Authentication may be a way to bolster their demands for greater retransmission fees from the subscription services.

Also, it’s important to remember that Hulu already has an authentication requirement. If you have an account with certain services, then you get to watch some FOX show episodes the day after they air. If not, you have to wait eight days. That went into effect last summer, and it does not appear to have had a negative impact on Hulu’s growth.

It’s early days yet and there’s still a lot of stumbling around in the dark to be done before we settle on just what this new world of video entertainment will look like (and we figure out who is going to pay for it). My advice is to be patient, and let the various services know what you like and what you don’t like. I expect that it will only get better as we go along.

Stations Must Reveal Political Television Ad Data

Are you curious about how your local television station charges for political advertising? If the FCC has its way, you won’t need to guess much longer. On Friday, the commission passed new rules that require stations to post the information on a public website.

At first blush, this may seem to be a strong blow for transparency in our political process, but I have to wonder if it will ever be implemented. First, it singles out television broadcasters. The rules do not apply to radio, newspapers, billboards, or even cable and satellite television networks. Just those stations that broadcast free over-the-air television.

In addition, only 10% of the stations will have to comply with the new requirements, at least at the start. The rules will apply to just the 200 largest stations that are affiliated with the major networks: ABC, NBC, CBS and Fox. The other 1,800 stations will not have to start making their disclosures for another two years.

I recognize that I’m treading a fine line here, but I believe that this issue transcends political party divisions that have polarized the discussion of many issues in the country. However, I believe that there are many people to the left and the right who have grave concerns about the amount of money spent on political advertising, and that more transparency could be a safeguard against abuse. On the other hand, I am a business owner and I would be distressed to have to put this much detail about my company finances in the public view. According to some reports, the television broadcasters offered to provide aggregate figures about total time and costs broken down by candidate, but the FCC apparently was not interested in this compromise. They want the specific rates paid to be posted online. I can see how this could lead to complications with commercial advertisers, once they see what the politicians got to pay for airtime.

On the other hand, the television stations already have to make this same information available for public inspection at their offices, so how much difference does it make that they also have to post it online?

I’m not sure what is fair in this dispute, but the one prediction that I can make with confidence is that the television networks will make sure that this ends up in court before it takes effect. And I hope that the final outcome will result in a positive change in television that has become a political battleground.

Death Spiral for Broadcast TV?

Did you ever hear the squeal of feedback in a public address system? It occurs because a sound coming from the amplified speakers finds its way into a microphone, where it travels to an amplifier that makes it louder. This louder sound comes out of the speaker and goes back into the microphone louder than before, where it gets amplified again. And the cycle repeats until someone turns down the amplifier or the equipment reaches its limits. Or it breaks.

This is called a positive feedback loop, because each time the sound passes through the system, it gets louder. A negative feedback loop does the opposite; it causes the sound (or signal or whatever you’re measuring) to decrease with each cycle, until it finally disappears. We also call this a “death spiral”.

A story in the Washington Post reports that by the third quarter of 2011, we were down to just 5.8 million U.S. homes that rely solely on free, over-the-air broadcasts for their television content. That’s a decline of more than 7% from the 6.25 million of just one year earlier. Many of these viewers are elderly, poor, living in sparsely-populated rural areas, or some combination of those three factors. And from a marketing perspective, these are not demographics that appeal to major advertisers.

It is the advertisers that drive the “free” broadcasts, but smaller television stations have found it increasingly difficult to attract advertising dollars. Companies are already dealing with constraints on their revenues as a result of the down economy, and at the same time, their marketing budget is being stretched to cover new media channels such as the Internet.

Larger stations have been able to replace some lost revenues by demanding larger retransmission licensing fees from subscription television services — though this is coming under increasing scrutiny from Washington D.C. and other quarters — but smaller stations often don’t have this luxury. In fact, many have to forego any retransmission fees at all, trading them instead for a guaranteed slot on the local cable system’s channels which increases their reach and helps improve their appeal to advertisers.

Should we allow the free broadcasts to simply spiral down into oblivion? This is a national question, and one of many similar thorny issues such as preserving the US Postal Service or subsidizing rural air transportation. What would be the impact of a national broadband plan? Is it time to replace the 1930s mandate for free television with a 21st Century mandate for free access to broadband? Six out of 10 U.S. consumers now get their news online in one form or another, according Nielsen. Would free broadband service be enough to provide access to streaming audio and video, replacing current over-the-air radio and television broadcasts?

These are not easy questions, but it’s clear that change is going to come whether we plan for it as a society or not. And we certainly won’t have a plan if we don’t start discussing it.