|By Walter S. Ciciora , Ph.D., Recognized Industry Expert on Cable and Consumer Electronics Issues|
The first category, market drivers, is relatively easy to deal with. There are none. I can personally name only one individual who has purchased an HDTV display and receiver with his own money. I know a large number of "gadget freaks," "early adopters," and individuals who could easily afford the HDTV receiver and any monthly fees required for HDTV service. None of them have put their money on the line. I know several people who have been involved in HDTV development but haven't put their own money down. As I said in my last column, I could be an HDTV consumer. I can both afford and appreciate HDTV. But there are many open issues, and I have been converted by the utility of the PVR. It's about the only way I watch TV anymore. There is no HDTV PVR at this time. Likely, a significant fraction, if not a majority, of HDTV systems in residences are in executive homes on expense accounts or on loan for competitive analysis or other business reasons.
The consumer electronics trade magazines tell us that the vast majority of HDTV products sold are HDTV displays without receiver capability. These are used primarily for DVD playback. The consumer electronics industry statistics are for product delivered to dealers; they do not register sales to consumers. The broader listing of digital television (DTV) products includes displays, complete receivers, set-top box adapters and even antennas.
The "Field of Dreams" approach–"Build it and they will come"–is sometimes proposed. This tactic has been discredited by the dot bomb experience. In these times, such action would be viewed as irresponsible, even though it has worked wonders in television's past. The shining example of this courageous approach is color TV. RCA's David Sarnoff had control of television research, television set production, broadcast equipment production, and NBC. He had a vision of color TV and bet the company on it. Having control of all the elements and being in an era where investors had more patience, he was able to take significant losses for nearly a decade before color TV became profitable. The current situation for HDTV is vastly different. No one has control of all of these elements. Even if someone did have such power, the institutional investors would not tolerate a period of the losses required to launch an HDTV business. An executive who attempted to do the "vision thing" on HDTV would suddenly be focused on his severance package.
One could argue that the marketplace doesn't yet know about HDTV. But that's hard to believe. A huge amount of money has been spent promoting HDTV and DTV. It would be hard to find someone who hasn't heard about HDTV from either commercial advertising campaigns, or in the news concerning spectrum issues.
It is hazardous to try to force something the market does not want. This can only be done by artificial means, and that usually produces distortions and unanticipated consequences. Consumers in a democracy vote with their dollars. They buy what they want and don't buy what has no appeal.
When there is vigorous market demand for a product, the reasonable thing to do is to aggressively fill it. When there is no market demand, the sensible thing to do is to be very cautious. In this case, I think you should be afraid. Very afraid.
So we can discount the market driver for HDTV. It does not exist.
What about an economic driver? Some entity must want this to happen for financial reasons. There are several possibilities.
Broadcasters were the first to demand spectrum for HDTV. They had already lost the upper channels to telecommunications interests and wanted to oppose still more demands for spectrum reallocation. The Japanese MUSE system promised advanced television, and the U.S. broadcasters cried that they would be left technologically behind. Now, most broadcasters have abandoned HDTV and have concentrated on multichannel DTV instead. The number of stations with DTV capability is behind schedule. The appetite for DTV is low and all but non-existent for HDTV. The reasons are understandable. Broadcasters derive revenue from advertising. Advertising requires an audience. Efficient advertising demands a large audience. Because there is little audience for DTV and essentially no audience for HDTV, the economics are a disaster. DTV and HDTV are all cost and no revenue. This is a negative economic driver.
Cable would win big if HDTV were successful. Only cable has the spectrum to deliver large amounts of HDTV. In fact, one of the main reasons Direct Broadcast Satellite (DBS) service became successful is the capacity made possible by digital compression of NTSC. Analog NTSC limited capacity to an uncompetitive number of channels. Popular HDTV would re-impose those constraints on DBS and again limit the number of channels. This would be even more powerful if local channels had to be carried in HDTV. Cable's controlled technical signal environment accommodates at least two HDTV signals in each 6 MHz slot currently occupied by one NTSC signal. That's not possible in broadcast or DBS. Broadcasters would also be limited. They would have to use essentially all of their 6 MHz slot for HDTV. This would destroy dreams of becoming a multi-channel source and limit the datacasting opportunity. But this driver succeeds only if there is massive marketplace demand.
The consumer electronics industry finds itself in a profitless business because it has huge overcapacity to produce. There are about 300 million color TVs in about 100 million TV households, and annual sales are around 20 to 25 million. The market is saturated; competition is fierce; margins are terrible. The only hope is for a new high-margin product. But that requires a marketplace demand that does not exist.
This leaves us with the political driver.