Is the DTV Glass Half Empty or Half Full?

The digital-television media bombardment has been a case study in contrasts. Some optimistic reports predict that most households will be DTV-equipped within 10 years, while others cite turf battles between broadcasters, the FCC, and various computer and electronics manufacturers as evidence of the minefield stretching out ahead. A study released this month by PricewaterhouseCoopers reports that industry executives are also painting dramatically different pictures of the digital future in 2009. In one, consumer technologies are seamlessly interconnected; in the other, television is stalled between analog and digital technology.

The report, Digital Television '99: Navigating the Transition in the US, examines the "profound" impact of DTV on traditional television-business models and related industries, and it maps out a range of probable outcomes and opportunities made possible by the new technology. The report was developed through in-depth interviews with executives from more than 30 entertainment, media, information, and communications companies as well as government agencies.

"DTV transforms television into a two-way medium," says Steven Abraham, global managing partner in PricewaterhouseCoopers' Entertainment and Media consulting practice. "One of its primary benefits, in addition to much higher quality, is the capability for seamless integration of traditional television with interactive computer technologies and networks. But getting to that point over the next 10 years requires companies across these industries to invest, innovate, and be ready to embrace the turmoil that fundamental change invites."

If All Goes Well . . .
Many executives interviewed believe the transition will be nearly complete by 2009, at which time roughly 85% of US households will have digital receivers and many others will have inexpensive digital-to-analog converters attached to their analog TV sets. These receivers will cost between several hundred and several thousand dollars, and they will be available at every price point in between.

According to this scenario, consumers will receive digital television with a variety of devices and from a plethora of services. Video on demand over the Internet will be very popular, and mobile users will have small screens on their portable telephones that will let them access video from satellites or the Internet. According to Mark Bunzel, also of PricewaterhouseCoopers, "In the digital environment, broadcasters will be in the business of 'bandwidth management.' They will adjust their broadcast product between digital formats during the course of the day according to factors such as audience size and demographic, and they will datacast such services as sports highlights and scores without viewers having to go online."

Other findings in the study that support this position: Nearly half of TV households will have some form of networking that links TVs, PCs, phones, and appliances throughout the house. The hub will be located in the PC or set-top box, depending on how much customization the customer wants.

On the Other Hand . . .
A more pragmatic group of executives sees a future in which broadcasters are forced to conduct business in a gray area somewhere between analog and digital. A number of them question whether DTV will be able to pass a 55% penetration level of US households within 10 years. In this view, the price of a digital TV is still too high for the mass market, or the content is just not compelling enough for consumers to upgrade.

Some see a parallel between AM/FM radio broadcasting and what could happen in television. They view such a two-system scenario as a fragmentation of their current business and revenue streams, with a resulting increase in their operating costs. According to this view, digital-television stations will offer a 24-hour schedule of programs, but only two of the big networks will transmit their schedules in the digital or high-definition TV format, and data broadcasting will not be a major business.

Many of the executives interviewed feel threatened by some aspect of the unfolding digital evolution. Broadcasters are concerned that they are being forced to invest in a technology for a slowly developing market of uncertain returns. This contrasts with innovative broadcasters who are willing to invest early in DTV to grab audience share in their highly competitive local markets.

While 67% of US households receive television signals through their local cable operator, the cable industry is undecided as to how or when it will be able to distribute new local digital channels to its customers. This will force early DTV households to install special antennae for digital reception. Consumer-electronics manufacturers are attempting to design and produce new products around a still-changing field of industry standards. In addition, the market is pressuring these manufacturers to rapidly reduce prices well before manufacturing quantities reach acceptable economies of scale.

Consumers are curious but largely unaware of the changes headed their way, and they are suspicious of the investments they will have to make. A recent Consumer Technology Survey found that 67% of US consumers are aware of digital television, but fewer than half of them feel the benefits and rationale for the conversion to DTV have been conveyed to them. Perhaps most important, these consumers are willing to pay no more than $90 extra for DTV capabilities.

Executives interviewed pointed out that we are only at the beginning of the transition to digital television. In 1998, 42 US television stations will begin some form of DTV transmission, and another 35-50 stations will begin transmitting DTV in 1999. For broadcasters, the next three to five years will be a period of investment as they upgrade their technical operations and begin to understand a new business model.

Years 3-5 will be a ramping-up period, with DTV penetration growing to 10-20% of US television households. Years 6-10 could see steady penetration through the 50% level, depending on the price of DTV receivers and television sets. Like today's personal-computer market, the penetration of households beyond the 45-55% level will be slow and dependent on both the quality of the available content and the continuing reduction in the cost of digital televisions.

"One of the key questions is not just how the technology integration will work," says Bunzel, "but whether consumers will find new digital televisions and interactive content compelling enough to invest in the technology."