CABL Forum - Re: Usdtv

Taking advantage of the excess capacity in local digital terrestrial broadcast signals, USDTV has launched a new pay TV service featuring HDTV broadcasts. Is America ready for an alternative to cable and satellite subscription services?

Created by Steve Lindsley, founder of the now-defunct WOW-TV interactive TV venture, the Utah company is doing a "stealth launch" to prove the business case in Salt Lake City before a national rollout of the service to 30 cities by the end of 2004.

USDTV CEO Lindsley said in an interview that he's not yet ready to announce the target markets, "but they will be among the top 50 urban population centers in the country." Salt Lake City is ranked 35th in population.

The initial "early bird" offering at USD $19.95 per month has attracted about 300 local subscribers to receive 30 channels over-the-air on a set-top box purchased retail at USD $99.00, which can be returned (with a penalty fee) before the one-year service contract expires.

The channel package features feeds from the local affiliates of the national broadcast channels ABC, CBS, NBC, PBS, Fox, UPN, WB, and Pax. USDTV negotiated carriage agreements with such cable channels as ESPN, Discovery, Disney, Lifetime, HGTV, and the Food Network. Further, five of the local broadcasters are providing their HDTV content to the new pay TV service.

IN THE BOX

The set-top boxes are being manufactured by Hisense Company, Ltd of China. The actual production cost is USD $150 per box, and Hisense is underwriting the first 100,000 boxes with an investment of USD $15 million. Without specifying the duration of the contract, Hisense announced at the CES show this month that the company has agreed to deliver 400,000 USDTV boxes every year.

The boxes are being distributed retail in Salt Lake City by a regional consumer electronic chain, R.C. Willey, and by Wal-Mart, the largest retailer in the United States. Hisense reported at CES that Wal-Mart has agreed to be a retail outlet for USDTV boxes in all target markets.

Lindsley said USDTV is now in talks with "all of the major consumer electronic manufacturers" to incorporate USDTV's proprietary DTV reception and conditional access technology into future models of their widescreen digital television receiver sets. He declined to name specific companies at this time.

USDTV chief operating officer Richard Johnson described the architecture of the box now being built by Hisense. He stressed that the equipment fully conforms to ATSC specifications to receive all 18 formats of standard digital television (SDTV) and high-definition digital television (HDTV).

Relying on a RF antenna input port for VHF, UHF and DTV signal reception, Johnson said the "plug and play" box has component, composite and S-video outlets for compatibility with any receiver, including the 275 million analogue TV receivers now used in the United States.

USDTV subscribers will not need to buy an expensive new digital TV monitor to view digital broadcast content on older analogue sets. The USDTV set-top will automatically display widescreen ATSC content in a letterbox format on NTSC sets.

"The box was designed to support our service," he said, " and the object was to reduce the cost of the box as much as possible.

The key element inside the box, he reported, is a digital broadcast signal tuner from ALPS Electric in Tokyo, Japan. The single-chip microprocessor demod and MPEG decoder in the box come from ATI Technologies in Ontario, Canada. USDTV had space in the ATI booth at CES.

The conditional access (CA) system in the box is proprietary, Johnson said. He declined to disclose the technology partner that developed the CA system under USDTV direction. He did report, however, that because there is no CA specification within ATSC, the CA system created for USDTV is based on the CA spec within DVB, akin to that used by EchoStar to secure its DVB satellite broadcasts.

The box soon will support a simple electronic program guide, he said, but would not provide any details beyond saying that the USDTV guide does require them to negotiate patent rights with Gemstar TV Guide.

Lindsley said that the guide and the rest of the USDTV offering will not feature advanced interactivity like the WOW-TV service, which he said failed in 2000 when the bottom dropped out of the Internet and interactive TV industry. "We do not yet see a viable business model for interactive services," he said, "so we're going with the services we feel confident can attract customers today."

Lindsley resisted comparisons of USDTV to the OnDigital service in the UK. "The only similarity is our over-the-air technology for the delivery of digital terrestrial broadcast channels."

Unlike OnDigital that relied on interactive advertising as it's primary revenue source, he said USDTV is being solely supported by subscription revenues, at least initially.

REVENUE SOURCES

Advertising may be added later, he said, but only if a business model can be found that does not simply shift limited advertiser dollars among content distributors. The challenge would be fairly sharing revenues with the local broadcasters offering their excess digital capacity to transmit the USDTV service. "We've not crossed that road yet," he said, "but we're not ruling it out."

Part of the issue is that broadcasters must pay a 5 percent surcharge to the FCC for any income derived from use of the spectrum granted to them for free under the 1996 Telecommunications Act. The lure Lindsley said, is that advertising-supported broadcaster are eager to explore new revenue sources "that were never available to them in the past."

The ideal behind USDTV, he added, it marry the best of breed from the pay TV and free-to-air business models. "We want to blend them both to provide a variety of revenue streams."

The real question is whether American television viewers are ready to pay for broadcast content that they traditionally have received for free. They subscribe to digital cable and satellite services, so why not a digital terrestrial broadcast service?

Lindsay is betting that enough consumer are ready for a service like USDTV. Without the interactive bells and whistles that bogged down WOW-TV, he's convinced that this time his venture will fly.

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Re: Usdtv