New Business

Digital TV: Where Are All Those Eyeballs?


For years local broadcast stations looked forward to digital TV as a potential business panacea. The technology would allow them to create so-called subchannels alongside their existing ones that would beam niche programming—from local weather to high school football games—over the air to viewers' sets, theoretically attracting more advertising and helping the local guys compete with cable. After several false starts, the analog era ended and digital television went live on June 12. And those dreamed-of subchannels? Most of the country's 1,700 TV stations have created them. But only the 10% of U.S. households that receive digital TV over the air can watch the new programming because the cable, phone, and satellite companies so far are disinclined to carry it. "These are worthy experiments," says media consultant Peter Kreisky. "But the question remains whether [stations] can lay a trail of bread crumbs so people can find these channels." Already, local broadcasters are casting around for other ways to get their new channels in front of viewers, including a bid to beam shows to cell phones and laptops. Over the past decade local stations have spent nearly $10 billion to go digital. Creating niche channels was one way they planned to recoup that investment. One company that has been especially aggressive on that front is ION, which operates 60 local stations nationwide. Where many stations have simply put up the doppler weather radar on their subchannels, ION CEO R. Brandon Burgess has focused on cable-like niches. ION's Qubo airs cartoon programming for kids while ION Life focuses on health and fitness. NBC offers its local stations a sports channel and just launched a New York City news channel. MGM aims to partner with local stations to offer a movie channel, and entertainment service LATV offers bilingual programming for young Latinos. Here's the problem: The cable, satellite, and phone companies are loath to distribute programming that is largely untested and may compete with their own channels. What's more, the recent switch to digital TV coincides with a punishing recession. Local TV advertising fell 28% in the first quarter from the same period in 2008. BEAMING TO CELL PHONESLocal stations are scrambling to woo advertisers. The pitch is that subchannels offer opportunities for businesses that have never bought TV time before and are disenchanted with local newspapers. Broadcasters are offering Realtors, restaurants, banks, car dealers, flower shops, and others lower rates than they charge on their primary channels. They also are offering free time as part of existing deals that advertisers, such as car companies, cellular carriers, and hotel chains, have with the primary channel. Solving the distribution problem is knottier still, and local broadcasters seem prepared to do an end run around the cable and phone companies. They are pinning their hopes on the next generation of cell phones, which will be able to receive digital TV signals. Later this year several broadcasters will partner with handset makers Samsung and LG to test such a service in Washington, D.C. It may be a long shot to think people will watch local TV on their phones, but broadcasters hope that if enough viewers like what they see they'll ask their cable and satellite providers to air the channels on TV. ION's Burgess sees a day when broadcasters lease their digital spectrum to cable channels so they can beam their programming to cell phones and laptops. "This is a way for broadcasters to reinvent themselves," he says. But any payoff from digital TV is several years away, and embattled local broadcasters will have to hang on until that day arrives.
Tom_lowry
Lowry is a senior writer for BusinessWeek in New York.

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