Digital transition may delete millions of viewers

LOS ANGELES (Hollywood Reporter) - A year from Sunday, television for many Americans will cut to black. Analog signals will stop transmitting, older sets will become useless and millions of TV-watching households will simply disappear.

A woman stands in front of flat screens at an exhibition stand of the IFA 2007 consumer electronics fair in Berlin August 30, 2007. An estimated 21 million households have TV sets that receive only over-the-air signals, and about 14 million of those homes rely solely on analog TVs, according to Nielsen Media Research. For viewers who don't upgrade to digital-ready TVs or set-top converters, February 18, 2009, will begin with a blank screen. REUTERS/Hannibal Hanschke

At least that’s the doomsday scenario confronting the TV industry as a government mandate forces all U.S. stations to convert to digital from the analog signals that have been broadcast on the same frequencies since the 1930s.

An estimated 21 million households have TV sets that receive only over-the-air signals, and about 14 million of those homes rely solely on analog TVs, according to Nielsen Media Research. For viewers who don’t upgrade to digital-ready TVs or set-top converters, February 18, 2009, will begin with a blank screen instead of a smiling Meredith Vieira. For TV executives, that day could be catastrophic.

“You could see a 5%-7% drop in the ratings in a heartbeat,” says Shelly Palmer, president of the New York branch of the National Academy of Television Arts & Sciences. Palmer estimates such a drop could translate to as much as $3 billion in lost revenue for networks, studios and stations.

Congress is preparing for the switch, allocating money for 33.5 million $40 coupons to defray the cost of set-top converters, which retail for about $50-$70. Each U.S. household is entitled to request up to two coupons, redeemable at a certified retailer within 90 days.

In addition, the National Association of Broadcasters is spending $700 million on digital TV education, which includes localized speaking engagements, informational ads set to premiere next week and a cross-country tour by two “DTV trekkers,” customized vans made up to resemble analog TV sets.

But networks are confronting the possibility that the education efforts won’t work and their already-eroding audience numbers will take another hit in the middle of next February’s sweep. NBC already has asked Nielsen to move up that sweep period so it ends before the transition, and other executives are keeping a close eye on what’s being done.

“A year out, is it daunting? Yes. Are people fully engaged? Yes. No matter what we do, it’s not going to be perfect,” says Martin Franks, executive vp at CBS Television. “It’s just how much we can minimize any consumer disruption.”

The initial response to the government coupon program has been strong -- 2.5 million requests in the first two weeks. But a recent study by the Association of Public Television Stations found that 61% of over-the-air households had heard nothing about the transition, and a survey released in November by the Leichtman Research Group found that only 19% of analog households strongly agreed that they understood how the transition would affect them.

With a year to go, those numbers will almost certainly change. NAB already points to its own study showing that 83% of over-the-air households have “seen, read or heard something about” the transition, up from 38% a year ago.

But Congress is not requiring retailers to participate in the coupon program, and only about 100 of them are certified to do so. Further, no one knows whether the increased awareness will translate into consumers taking action before their TVs go dark.

“I think the American public has close to zero awareness of what’s coming,” Bob Pittman, a co-founder of MTV and member of private investment firm Pilot Group, told an audience at the television industry’s recent NATPE convention in Las Vegas. “I think they’re going to be hopping mad at the government when (it) turns off the TV.”

According to spokesman John Taylor, LG Electronics has two entry-level converter boxes already in stores. Taylor, a member of the board of the DTV Transition Coalition, says LG expects to sell millions of the boxes during the next year and that its research indicates consumer response will not heat up until the deadline grows closer.

“The real action for coupon ordering and sales takes off in the second half of 2008,” he says.

Federal Communications Commission (FCC) chairman Kevin Martin echoed this sentiment at the Consumer Electronics Show in January, defending the strategy of waiting to ramp up education initiatives. “I think in general we don’t want to put too much emphasis on that too early,” Martin says.

But Best Buy spokesman Brian Lucas says that promoting steady sales from now through early 2009 is key to the chain’s strategy. “It’s the big ebbs and flows that are going to cause problems,” he says. “We don’t want to get to this point next year and have everybody decide all of a sudden that they need to get a converter box or a new television. That’s what would make us nervous.”

The relatively low-key approach to the transition caused the Government Accountability Office to find in November that the FCC and the National Telecommunications and Information Administration (NTIA), the agency in charge of the U.S. coupon program, had “no comprehensive plan or study to measure progress and results” of their education efforts. The FCC responded that it has been planning for the DTV transition for more than 20 years.

FCC commissioner Michael Copps worries that too much faith has been placed in the free market to minimize consumer disruption.

“This is a national problem,” he says. “A lot of people are going to be affected. That’s not business as usual. That’s not something where we can rely on the wonderful workings of the invisible hand.”

Copps argues that while the U.K. is spending $400 million to educate a country of 60 million people about their own transition to digital TV -- a phased process that will last until 2012 -- the NTIA has an outreach budget of only $5 million for a country of more than 300 million.

“We’re relying on industry to do the rest,” he says. “And industry will do a lot. But this has to be coordinated.”

President Bush’s proposed budget includes an additional $20 million for DTV education, a figure that House Commerce Committee chairman John Dingell, D-Mich., has called “far too little.”

Adding to the concern, a study by market research firm Centris has found that gaps in digital broadcast signals could leave 5.9 million TV sets unable to receive as many channels as they did before the transition -- and that’s with the converter box. The study suggests that to maintain reception, many viewers would have to buy new outdoor antennas.

A major complicating factor in spreading the word about the transition is that the over-the-air viewers who will be most affected also are the hardest to reach. In particular, LG’s Taylor says, the industry is concerned about five “underserved communities”: the elderly, the underprivileged, minorities, rural Americans and people with disabilities. According to NAB, 31% of Latino households get their television over the air, compared with 15% of the general public. The number jumps to 41% for households speaking primarily Spanish.

While advertisers might fret less about the loss of lower-income TV viewers, Amina Fazlullah, a Public Interest Research Group staff attorney, worries that consumers forced into stores by the transition might be easy prey for unscrupulous or misinformed salesmen.

“They’re going to depend on retailers, and when they go in, they’re going to look for whatever fix the retailers hand them,” she says.

The NTIA is requiring that retailers retrain their sales staff to prepare for a wave of new customers seeking converter boxes. But there is no clear means to enforce that provision, nor to sanction retailers who violate it.

“The approach by the government so far is that they’re relatively hands-off,” Fazlullah says. “The hope is that the industry will self-regulate.”

CBS’ Frank and NBC Universal research chief Alan Wurtzel both say doomsday scenarios are overstated. They believe the transition could shake out in a similar manner as the Y2K changeover, where a lot of hard work and awareness efforts turned what could have been a disaster into a mostly smooth process.

In particular, Wurtzel finds it hard to believe that millions of people will simply stop watching TV.

“I’m not really worried in the long term that a lot of people will be disenfranchised without television,” he says. “My big worry is that there will be measurement issues.”

Those issues include an equipment upgrade required by Nielsen to move analog measurement homes to digital in time for the change.

“We have an entire team that is looking end-to-end at every aspect of the digital transition,” a Nielsen spokeswoman says. “We’ve had a series of meetings with clients to discuss with them the challenges they know and the challenges they haven’t thought about.”

Further complicating matters, Nielsen can’t simply inform affected viewers that they need to convert because clients and the Media Rating Council might consider that an improper influence over how sample households watch television. So crews are bringing carefully written scripts and other messages into homes.

“We’re not taking this lightly,” the Nielsen rep says.

With a year to make inroads, broadcasters and retailers are confident that the vast majority of viewers will upgrade to digital with time to spare. But in a worst-case scenario, a disruption in service could cause both a short-term hit to ratings and -- if viewers to decide that making the transition is more trouble than it’s worth -- a more long-term exacerbation of recent downward trends in viewership.

“TV is very habitual. The biggest danger is when you break a habit,” Palmer says. “I think a substantial number of these antenna-only households are going to disappear.”

Reuters/Hollywood Reporter