CEA Funded Study Says Free OTA TV Not Worth Keeping

by Doug Lung, 10.29.2009

It's no surprise other interests are eying TV broadcast spectrum, especially the UHF TV channels. Large antennas aren't needed for communication and building and tree attenuation isn't as much of an issue as it is above 2 GHz. Broadcasters lost channels 70 – 83 to wireless services decades ago and this year vacated channels 51-69. Last week the Consumer Electronics Association (CEA) filed a study showing, in essence, that over-the-air TV broadcasting isn't worth keeping. Note the CEA cover letter includes this disclaimer: "CEA does not necessarily endorse the results of this specific analysis and recognizes that interested parties will criticize its methodology, but offers this economist's approach as the type of analysis that should be considered by the FCC."

Even without CEA's endorsement, the study will be used to demonstrate that use of this valuable spectrum for free over-the-air TV can't be justified. Wireless companies will be able to make far more money selling subscriptions to broadband and smartphone users than broadcasters can hope to make selling advertising to support a free service. Indeed, the difference in the value of the spectrum is enough, the CEA funded study implies, to fund a lifetime subscription to basic cable or satellite services for existing over-the-air viewers and pay broadcasters for their investment. Broadcasters would continue to be able to reach most viewers through must-carry rights on cable.

The study, The Need for Additional Spectrum for Wireless Broadband – The Economic Benefits and Costs of Reallocations by Coleman Bazelon from The Brattle Group, begins by stating, "The unrealized gains from reallocating radio spectrum are well illustrated by the current broadcast television band. The vast majority of programming from over-the-air broadcasters is viewed on subscription services such as cable and satellite. Increasingly, the over-the-air portion of broadcasting is becoming less economically relevant to broadcasters. Consequently, the large amounts of radio spectrum allocated to broadcast television could be reallocated, in whole or in part, to wireless broadband uses."

Bazelon's analysis "estimates the market value of the broadcasters’ spectrum if it was available for wireless broadband at about $62 billion." The study finds, "Making that spectrum available would require either paying broadcasters for their spectrum—estimated at about $12 billion to make them whole—or paying to migrate all households that rely on over-the-air broadcasts to subscription services—estimated at a cost of about $9 billion."

Another option that I've heard is to eliminate HDTV broadcasts (at least over-the-air) and consolidate multiple broadcasters' SD transmissions into a smaller number of remaining channels. Multiple broadcasters would share one TV channel. This seems to be what Bazelon is proposing when he says, "Alternatively, broadcasters could continue to provide over-the-air broadcasts on a smaller portion of their allocated frequencies, freeing up a significant portion of the band for wireless broadband. This latter option would cost less—an estimated $6 billion in compensation to broadcasters—but only free up about $48 billion worth of spectrum."

The study uses the recent 700 MHz auction as a starting point in determining the value of TV spectrum for non-broadcast services, although I should note that some of the winners in the 700 MHz auctions, Qualcomm's FLO TV and EchoStar, plan to use their spectrum to offer subscription video services. The value of the spectrum when used for advertiser-supported free TV was calculated based on financial markets' valuation of broadcasting companies, including Sinclair Broadcast, Belo Corporation, Hearst Television, Gray Television, Young Broadcasting and others.

I'll refer you to the study for details on the analysis. As I see it, most broadcasters did not have to bid on their spectrum in an auction and therefore can afford to use it to offer free, advertiser supported or, in the case of PBS, donor supported over-the-air TV and offer new services like ATSC Mobile DTV at little or no charge to viewers. However, assuming the demand for broadband Internet and subscription TV is as great as Bazelon's study indicates, much more money could be made by auctioning the spectrum to the highest bidder, who will then charge broadband customers (or viewers of streamed programs) as much as the market will bear for access to the Internet and other programming, providing greater economic value.

While most RF Report readers would object to shutting down free over-the-air TV to make room for more subscription-based broadband and video services, many consumers, who have been led to believe data bandwidth is unlimited and any program you want is available for free on the Internet won't care. They may be in for a surprise.

Recent stories say Hulu, the very successful and popular video site, won't be free in 2010. Newspapers are looking for ways to charge for their online news content. As reported last week, wireless broadband companies are likely to levy extra charges on subscribers that use large amounts of bandwidth downloading video. With viewers forced to use cable or satellite to receive local TV programming, what incentive is there for networks to provide programming to local affiliates when they can reach everyone via cable? What impact will this have on local stations' ability to earn enough revenue to continue to provide local news and local programming?

Unless broadcasters are able to rally popular support for free over-the-air TV, I fear there is a good chance that less than 10 years from now many station owners will end up cashing their spectrum check and getting out of the business, leaving subscription services and YouTube to fill the void. After all, don't the studies show that's what the market values most?