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Industry Roundup

Retailers on the rise: Best Buy and Circuit City, North America's largest and second-largest electronics chains, both reported surges in profits for the fourth fiscal quarter ended February 28. Best Buy's profits rose 51% to $469 million on strong sales of flat-panel TVs, digital cameras, and computers, while Circuit City posted a net income of $89.6 million, a 26% increase in profits over last year's fourth-quarter $70.9 million, after making cost-cutting efforts.

Richmond, VA–based Circuit City also announced that it would buy InterTAN, an electronics chain based in Barrie, Ontario, with 980 stores across Canada. Best Buy already operates some namesake stores north of the border, in addition to its many Future Shop outlets. Circuit City also announced plans to acquire MusicNow, a Chicago online-music business previously known as FullAudio Corp.

Good-bye, Gateway Country: Gateway, Inc. has decided to abandon the retail business. On Friday, March 26, the computer maker announced that it would close its188 retail stores and lay off 2500 workers, effective April 9. The news came as a probable shock to those affected, but not to industry observers who had long wondered about Gateway's lurching efforts to break into home entertainment. Gateway broke the price barrier with a 42" plasma display below $3000—with profits rumored in the low single digits—and had hoped to leverage that into a larger presence in the ever-expanding "convergence" arena. The investment community greeted the news with gusto, forcing Gateway's stock up almost 11%. Gateway will continue as a Web-based and mail order operation, according to the announcement.

Twilight of the dinosaurs: Broadcast TV is suffering a slow economic decline, notes an April 2 report from Communications Daily. Local and network broadcasters continue to lose ground to cable companies, according to a presentation at the NAB Futures Summit at the end of March by Joseph Kraemer of the Law & Economics Consulting Group. Kraemer predicted the cable industry, with advertising revenue last year of $17.7 billion, would "overtake broadcast network ad revenue ($16.8 billion) in 2005 . . . with cable's advantage growing in 2007 to $22.2 billion vs $18.5 billion." He suggested that the only hope for broadcasters is to move to a multicasting model. Such a strategy would likely contravene broadcasters' pact with the FCC to use allocated bandwidth for the delivery of high-definition television.

More VOD: Comcast Corporation plans to add "thousands of hours" of video-on-demand for its subscribers in New England, according to a March 25 report by Peter J. Howe in The Boston Globe. The move will be accompanied by the rollout of cable boxes with "TiVo-like recording features," Comcast chief executive Brian L. Roberts stated.

Channel blocking: Reuters reported March 23 that US cable companies "have pledged they would not charge cable customers to have some channels blocked so they can avoid programming they find offensive." The move comes as a response to the latest hysteria over indecent programming in the wake of Janet Jackson's "wardrobe malfunction" during the Super Bowl half-time show. The National Cable &Telecommunications Association (NCTA) announced the pledge and unveiled a new web site that provides instructions on how to block channels.

FCC DTV plan under fire: Three members of a US House of Representatives committee have expressed doubts about the Federal Communications Commission's plan to improve the pace of the transition from analog to digital broadcasting. Under the agency's original plans, broadcasters were to return their analog channels to the FCC by the end of 2006, and the spectrum would be auctioned off to the wireless communications industry. The date of the eventual return of analog licenses could be postponed indefinitely by a rule stipulating 85% market penetration for digital before analog broadcasting goes dark. FCC Chairman Michael Powell has proposed that, given the shortage of digital receivers, broadcasters hasten toward that goal by down-converting digital signals for analog customers. Critics have complained that the plan defeats the purpose of the transition to digital technology.

Three Republican members of the House Energy and Commerce Committee—Charlie Norwood (GA), Lee Terry (NB), and Richard Burr (NC)—signed a letter to Powell noting their concern that such a policy "would produce severe unintended consequences and would directly contravene the legislative intent of Congress." The legislators said "the FCC should wait until its mandate requiring digital tuners in new televisions has taken effect, and until cable's obligations to carry digital signals are clarified," according to a recent report from Dow Jones Newswires. "Pairing a more realistic hard-date with both a sensible cable carriage plan and marketplace acceptance of the FCC's tuner mandate would make more sense," they wrote. Powell's plan to accommodate analog technology would "provide no incentive for consumers to eventually upgrade to digital displays and high-definition digital sets and consumer adoption of digital television."

HDTV Forum 2004: Riding on the success of last year's inaugural HDTV Forum, Austin, TX–based research firms DisplaySearch and Insight Media have officially announced the details of this year's HDTV Forum 2004, to be held at the Westin Century Plaza in Los Angeles on August 24–26, 2004. Early sponsors and supporters already include LG Philips LCD, Zoran, Custom Retailer, Dealerscope, and HighDef magazines, according to a press release. "The event will bring together representatives from TV and cable networks, government agencies, satellite and cable providers, retailers, distributors, TV brands, TV OEMs, panel/tube/engine manufacturers, and IC manufacturers for information exchange on the key topics facing the emergence of the HDTV era and will offer an opportunity to interact with the industry's movers and shakers," according to the announcement. Registration is $1295 through May 15, with fees to increase as the event nears. Sponsors' or exhibitors' fees range from $5995 to $9995. Visit DisplaySearch for more information.

Progress in digital cinema: Major Hollywood film studios have offered concessions including cost-sharing, to theater to owners in order to prompt a widespread roll-out of digital cinema systems, according to a March 24 report from Reuters. Such systems can cost upwards of $100,000 per theater, but offer substantial cost savings to studios by eliminating the need to ship canisters of film.

Despite the technical superiority of digital cinema, theater owners have been reluctant to embark on massive overhauls due to the enormous costs involved and the uncertain return on investment. Chuck Goldwater, CEO of film industry consortium Digital Cinema Initiatives, said at the recent ShoWest convention that "studios were exploring the possibility of establishing a 'financing entity to create a pool of capital' to subsidize digital cinema installations." He also said, "a draft of technology standards was nearly final and that security measures had been strengthened to combat film piracy." President of the National Association of Theater Owners John Fithian said Goldwater's remarks were encouraging. "We are at the beginning of discussions of business models that are possible," he stated.

DTS Lossless Digital Sound: Digital Theater Systems, Inc. (DTS) has announced the development of a system for delivering "lossless" digital soundtracks into movie theatres. The technology is said to deliver cinema soundtracks that are "bit-for-bit identical to the original master." DTS lossless coding is made possible by a new extension to the DTS "Coherent Acoustics" codec, used in applications for broadcast, home theatre, car audio, DVD-related software, and in PC and game console products.

The technology is said to work with all film specifications used in exhibition, including 16mm, 35mm, and 70mm; with any pulldown or frame rates; as well as digital pre-show, alternate content and digital cinema sources. Sampling rates include 44.1, 48, and 96 kHz at 16-to-24 bits. Demonstrations of the system to distributors and exhibitors will take place during 2nd quarter 2004, according to a March 22 announcement from the Agoura Hills, CA–based technology company.

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