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If Neal Goldberg had any doubt he was facing a hostile crowd, the bull’s-eye he found on his chair made his role abundantly clear. As part of a panel discussion last week on the transition to digital television, Goldberg, general counsel of the National Cable & Telecommunications Association (NCTA), cheerfully played Daniel in the lion’s den — the lone voice defending the cable industry before a crowd of irate electronics makers. But Goldberg could afford to be cheerful. Outside the Ronald Reagan Building and International Trade Center in Washington, D.C., where the Consumer Electronics Association was holding its annual conference, the cable industry appears to have gained the upper hand — at least for the moment — in the intense battle over the slow-motion rollout of digital television. The first significant change in television technology since the advent of color in the 1950s, DTV in its high-definition format offers consumers a stunning, crystal-clear picture and CD-quality sound in sets now available for about $2,000. It also opens the door to interactive television, where viewers at home could play along with “Who Wants to Be a Millionaire?,” access player stats during “Monday Night Football,” or order a salad spinner from an infomercial. But the logistics of converting television broadcasting from an analog to a digital format have proved wildly contentious, pitting broadcasters, equipment makers, and cable companies against one another in an orgy of finger pointing and blame. “This is the biggest public policy train wreck I’ve seen in 20 years in Washington,” says Jeffrey Eisenach, president of the D.C.-based Progress and Freedom Foundation. In 1997, Congress, in an attempt to hasten the conversion to DTV, handed over a major public resource — around $70 billion worth of spectrum -� to broadcasters for free. Four years later, the airwaves remain almost entirely vacant. Under Congress’ original timetable, the vast majority of American consumers are supposed to switch to digital television within the next five years, either by purchasing new TVs or using set-top box converters. At that point, broadcasters would pull the plug on analog transmissions, and the U.S. government would reclaim the analog spectrum to sell off or use for third-generation wireless devices. But there’s a loophole: If 85 percent of consumers haven’t made the switch by 2006, broadcasters can keep using the analog spectrum for as long as it takes. “There’s no longer a soul in the industry who thinks the transition will be over by 2006,” Edward Markey, D-Mass., the ranking minority member of the House Subcommittee on Telecommunications and the Internet, noted during a hearing earlier this year. “It’s quite clear we are not remotely close.” WHICH CAME FIRST? The crux of the problem, says Scott Flick, a partner at Shaw Pittman, is “a tremendous chicken-and-egg argument.” Networks are doing little high-definition programming because there are so few people to watch their digital fare. Consumers are reluctant to buy costly digital sets because there is so little high-definition programming to watch. And standing between them are the nation’s 1,200 cable operators, who provide television service to 67 percent of U.S. households. The digital revolution has left cable well-positioned. “Once upon a time, cable was widely perceived as a toad in the communications sector. Yeah, it was a nice little business, but it was hardly charmed,” said Federal Communications Commission Chairman Michael Powell in a June speech at a cable industry convention. “Now there has been a digital kiss placed on this toad and technology has transformed that toad into a prince.” Cable’s advantage hasn’t exactly endeared it to the other players in the DTV marketplace, which increasingly blame cable operators for the digital stalemate. Electronics makers are peeved because cable operators have not committed to certain DTV technical standards, preventing the manufacture of cable-ready sets. Instead, cable operators enjoy a monopoly on the rental or sale of special set-top boxes necessary for DTV owners to get cable, whether in analog or digital broadcast. “This is a tragic state of affairs,” says Michael Petricone, vice president of technology policy for the Consumer Electronics Association. “Manufacturers and retailers want to get into that market, and consumers are being deprived of choice.” But the ugliest fight is between broadcasters and cable operators over how much digital network programming must be transmitted via cable. Right now, cable operators dutifully transmit all network fare in the old analog format, as required by law. But as networks slowly roll out high-definition digital fare — “NYPD Blue,” for example, “The Tonight Show with Jay Leno,” and much of CBS’s prime-time lineup — they want cable operators to air the souped-up versions as well. Shaw Pittman’s Flick, who represents Spanish language broadcaster Univision Communications Inc., calls the so-called dual carriage requirement “the single most important issue for the success of the DTV transition and the continued vitality of local television in a digital world.” But cable operators have balked. They will air “NYPD Blue” in analog or in digital, but they refuse to use up a large chunk of spectrum airing the same program in both formats — at least not now, when the audience is so small. “We’ve said time and again that if there is compelling [digital] programming out there, we’ll air it,” said the NCTA’s Goldberg, speaking on the panel last week. “Clearly, we want to carry the programming our customers want.” Still, industry lawyers argue that broadcasters shouldn’t get a free ride when cable channels like Discovery and HBO are also in the process of converting to digital without any special rights. “What the cable industry is being asked to do is to drop services they now carry or [forego] new services, so broadcasters can provide largely duplicative programming only seen by a small number of rich, high-end, early DTV adopters,” says Michael Hammer, a Washington, D.C.-based partner with Willkie, Farr & Gallagher who represents the AT&T Corp. Hammer notes that the cable industry has spent $42 billion in the last five years upgrading its systems for digital capacity. “There are a lot of other things cable operators want to do with that spectrum,” he says. Among them: Internet access, telephony, pay-per-view channels, and video-on-demand. “The cable industry will do just about anything not to give up bandwidth,” notes Josh Bernoff, an analyst with Forrester Research. WHY BUY DIGITAL? But broadcasters, who are under orders to begin digital transmission by May 2002, say that if cable customers can’t see digital shows, there will be little incentive for anyone to buy a digital television. Simply cutting off analog transmission in favor of digital is not an option — imagine the public outcry. What’s most likely is that no one will broadcast in digital until virtually every viewer has left analog behind. According to a study by the National Association of Broadcasters (NAB), this will take 20 years or more unless the FCC intervenes and tells cable companies they must carry both digital and analog signals. That’s bad news for the U.S. government, because it won’t get the analog spectrum back until the transition is complete, and bad news for TV stations, which will see expenses soar as they run operations in digital and analog simultaneously. “The cable industry’s intransigence,” says Dennis Wharton, a spokesman for NAB, “is thwarting the ability of American consumers to see digitally broadcast signals in cable.” If the FCC imposes a must-carry requirement, however, it will “open up mass audience access to on-air DTV broadcasts, thus enabling a chain reaction ofmore sets and more programming, driving the market place to the ‘tipping point’ where consumer demand will complete the transaction,” wrote lawyers for NAB in comments filed with the FCC in June. But cable operators have already won the first round with the FCC. In January, the agency tentatively concluded that “based on the current record, a dual carriage requirement may burden cable operators’ First Amendment interests more than is necessary to further the important government interests they would promote.” The agency decided to continue the inquiry, accepting comments on the issue until last week. No timetable has been announced for a decision. In a favorable signal to the cable industry, FCC Mass Media Bureau Chief Roy Stewart, speaking before the cable industry in June, warned broadcasters that they “better wake up to the possibility that the Commission might not give them must-carry,” according to Communications Daily. NAB, it seems, got the message. Almost simultaneously, NAB’s Television Board of Directors issued a statement ordering the organization to “pursue new and innovative ideas with industry partners and government leaders to break a public policy logjam over issues such as cable carriage.” Wharton of NAB says the organization is planning a DTV “educational” campaign via outreach to Congress, industry, and the public. He declines to elaborate on the other new ideas, but says NAB “has not changed its position on dual carriage.” Overall, Chairman Powell’s enthusiastic embrace of “market solutions” jibes well with cable’s campaign against further regulation. Still, Powell has warned cable operators to “find ways to be perceived as a productive partner in [the DTV] transition” lest they “snatch defeat out of the jaws of victory.” It seems the cable industry is taking no chances, and is spending heavily on lobbying. According to Senate records, in 2000, the NCTA alone shelled out more than $3.9 million, up from $3.1 million in 1999. “Any regulations on cable operators are likely to be weak and far in the future,” predicts Bernoff of Forrester Research, who says a more likely scenario is for individual broadcasters to cut deals with individual cable operators to retransmit their programs in digital. Adds Jeff Chester, executive director of the Center for Digital Democracy: “The cable industry is the ultimate gatekeeper for the future of TV as well as the Internet of the future… . It’s the golden platform.”

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