The present infrastructure for terrestrial broadcast and cable delivery to the home is analog based and is thus incompatible and noninteroperable with the concept of the national information infrastructure (NII), which is based on digital signal processing and transmission. However, the potential economic and technical advantages of digital transmission are so appealing that the transition to digital delivery techniques is inevitable.
The central problems associated with the transition to digital broadcast transmission to the home are consumer based. First, unlike all other services to the home, broadcasting is a mature industry with near universal access to the American home, and with some 170 million television receivers installed. Each household has on average 1.9 sets. Thus, even if the total present annual output of 28 million televisions was converted to digital receivers, 9 years would elapse before the analog service could be abandoned and digital service take its place. If universal access is a defining condition of the NII, then the present broadcast and cable-TV services together constitute the national information infrastructure.
Second, the terrestrial broadcast service that the consumer now enjoys is free, and the public expects it to remain so. Cable TV is not free, but 63 percent of television households (TVHH) are willing to pay $300 per annum to receive over 40 additional channels of programming in addition to the delivery by cable of all local broadcast stations. In fact about 60 percent of all TVHHs view broadcast programs via cable, often because the quality of the broadcast signal delivered in metropolitan areas is deficient.
It is therefore clear that the consumer will be willing to make an investment in digital receiving equipment only if a service is provided that offers uniquely attractive features and a superior quality of picture and sound.
This paper, then, explores the means by which the NII can help to provide a significantly improved service to the present broadcast and cable universe, ideally with no increase in cost to the consumer. New services, functions, and means of delivery will be considered, but only in the context of providing them for all consumers at a price that they are willing and able to pay, and at a cost that is economically viable for both the program and service providers.
The primary service provided by broadcast and cable is passive entertainment with a wide range of program choice. The issue to be addressed is whether and how the NII can be adapted to continue this service while improving both its quality and diversity.
The broadcast and cable industries today share three major features: universal access, an entertainment service, and localism.
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Page 101 13 The NII in the Home: A Consumer Service Vito Brugliera, Zenith Electronics James A. Chiddix, Time Warner Cable D. Joseph Donahue, Thomson Consumer Electronics Joseph A. Flaherty, CBS Inc. Richard R. Green, Cable Television Laboratories James C. McKinney, ATSC Richard E. Ottinger, PBS Rupert Stow, Rupert Stow Associates Introduction The present infrastructure for terrestrial broadcast and cable delivery to the home is analog based and is thus incompatible and noninteroperable with the concept of the national information infrastructure (NII), which is based on digital signal processing and transmission. However, the potential economic and technical advantages of digital transmission are so appealing that the transition to digital delivery techniques is inevitable. The central problems associated with the transition to digital broadcast transmission to the home are consumer based. First, unlike all other services to the home, broadcasting is a mature industry with near universal access to the American home, and with some 170 million television receivers installed. Each household has on average 1.9 sets. Thus, even if the total present annual output of 28 million televisions was converted to digital receivers, 9 years would elapse before the analog service could be abandoned and digital service take its place. If universal access is a defining condition of the NII, then the present broadcast and cable-TV services together constitute the national information infrastructure. Second, the terrestrial broadcast service that the consumer now enjoys is free, and the public expects it to remain so. Cable TV is not free, but 63 percent of television households (TVHH) are willing to pay $300 per annum to receive over 40 additional channels of programming in addition to the delivery by cable of all local broadcast stations. In fact about 60 percent of all TVHHs view broadcast programs via cable, often because the quality of the broadcast signal delivered in metropolitan areas is deficient. It is therefore clear that the consumer will be willing to make an investment in digital receiving equipment only if a service is provided that offers uniquely attractive features and a superior quality of picture and sound. This paper, then, explores the means by which the NII can help to provide a significantly improved service to the present broadcast and cable universe, ideally with no increase in cost to the consumer. New services, functions, and means of delivery will be considered, but only in the context of providing them for all consumers at a price that they are willing and able to pay, and at a cost that is economically viable for both the program and service providers. The primary service provided by broadcast and cable is passive entertainment with a wide range of program choice. The issue to be addressed is whether and how the NII can be adapted to continue this service while improving both its quality and diversity. Background The broadcast and cable industries today share three major features: universal access, an entertainment service, and localism.
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Page 102 Universal Access The existing infrastructure serves almost all citizens. Ninety-eight percent of all households have televisions, including more than 15 million households rated as below the poverty level of income. Ninety-six percent have telephone service, and 63 percent subscribe to cable-TV service, which is available to 95 percent of TVHHs. In those areas where broadcast television reception is poor, the delivery of the broadcast signal via cable is an important complementary function of value to the consumer. In addition, cable TV provides over 40 cable networks on the average system, together with some distant and out-of-market broadcast stations. Thus the home consumer has a wide choice of programs. The telephone system provides fully interactive voice communication and, with the addition of a fax machine, enables interactive communication of text and graphics. For other interactive services, such as home shopping programs delivered by cable TV, the consumer can use the telephone to place orders for the products selected. For all these consumer services, the broadcast, cable, and telephone media have essentially met the goal of universal access. A historical account of the growth of the penetration of these media into the home is presented in Figure 1. The number of TVHHs increases at a rate of about 1 million per year, generally keeping pace with the growth in the number of households. The measure of the "television of abundance" is seen in Table 1, where the services listed are the average of those provided by each of the top 60 television markets, a grouping that encompasses 73 percent of all TVHHs. In this average market there are eight local television stations. Cable-TV systems provide 42 basic cable networks catering to a diversity of special interests, commonly called niche markets. These include typically a 24-hour national news service, local news, sports, talk shows, music video, documentaries, history, natural history, the arts, cooking, home improvement instruction, congressional proceedings, weather, and home shopping. Figure 1 Penetration of consumer devices and servicesvideo cassette recorders, compact disk players, basic cable, and pay cableinto U.S. households, 1975 to 1993. TABLE 1 The Television of Abundance (Top 60 Markets) Service Average Number Provided by Each Top Market Current Broadcast 8 Local stations Cable 42 Basic cable networks 10 Pay-cable networks 8 Pay-per-view channels 5 Out-of-market broadcast stations 3 Public access channels Direct broadcast satellite 150 Channels Total 226 Channels Coming 40 Near-video-on-demand channels TOTAL 266 Channels
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Page 103 In addition to carrying the eight local broadcast stations, five distant out-of-market broadcast stations are carried. Public access channels are also available to anyone wishing to address the audience on any subject they please. The cable system offers also 10 pay-cable networks, to which the consumer may subscribe for a fee of approximately $100 per annum per network. These pay-cable networks offer recent feature films, in addition to the production and origination of over 60 movies per year, at a production cost of $3 million to $5 million each. The pay-TV networks also acquire the transmission rights to other programs produced elsewhere. Eight pay-per-view channels are offered, giving access to recent feature films, sporting events, and music spectaculars, for which a charge of about $5 is levied for each program selected. Direct broadcast satellite (DBS) service is now becoming generally available, offering some 150 channels, and while the market penetration is less than 1 percent of TVHHs, it is growing steadily. The programs offered are mainly those offered by pay-TV together with many pay-per-view channels. DBS is available and is being installed by a broad cross section of consumers, including many who have cable service, and among many of the 37 percent of TVHHs that do not or cannot subscribe to cable services, including the 5 percent of homes that are not passed by cable. The existing infrastructure thus offers a total of 226 channels for the consumer's selection. When this infrastructure is converted to digital transmission and the use of digital compression, this number may be increased severalfold, and the so-called "500-channel universe" will have arrived, with perhaps hundreds of channels available for near-video-on-demand, or NVOD. For the practical purposes of the home consumer, the services of terrestrial broadcast, cable, and the telephone together constitute a national information infrastructure with almost universal access. An Entertainment Service The successful and deep market penetration of terrestrial broadcasting and cable stems in part from their satisfying the consumer's primary desire for passive entertainment, and not interactivity. In addition to the mass-market entertainment, niche-market entertainment is provided by cable-TV networks. The second category of programming delivered by broadcast and cable is national and local news and information. The consumer's desire for this service is demonstrated by the fact that a broadcaster's local news service is the single most profitable type of programming. Indeed, television news is perceived by the consumer as the most trusted source of news, according to surveys conducted over the last decade. Though the home television receiver is on for an average of 7 hours per day, it is in the evening prime-time hours that the audience is greatest, when 71 percent of the TVHHs, or 58 million people, are viewing the screen. The vast majority of this audience watches passive entertainment and sports. The share of this active audience viewing each of the main delivery services is shown in Figure 2. The market demonstrates that entertainment remains the most desired service and that broadcasting and cable meet this need. While the digital revolution may offer new services that enhance the entertainment value of programs delivered to the home, entertainment will remain the key element of such services if they are to succeed in the marketplace. Figure 2 Share of viewing audience during prime time for each of the main categories of program providers, 1994.
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Page 104 Localism The ability of broadcasting and cable to deliver local news, public affairs, information, and sports has proven to be critical to the profitability of local broadcast stations. These services, supported by local commercial advertising, have proved vital in cementing the social fabric of a community. In times of crisis or local disaster, local broadcasters and cable TV provide a vital service to the populace. In planning the development of the NII as a universal service, it is therefore essential that the infrastructure be compatible with the delivery of local content for each market and community. Analysis and Projection The plethora of new services and functions postulated for the home consumer, all enabled by applications of digital technology and their integration into the new infrastructure, should be examined in the context of three factors: cost to the consumer and the desires of the consumer, technical and economic feasibility, and regulatory issues. Cost to and Desires of the Consumer Whatever new services and functions the NII can deliver to the consumer, his willingness to acquire them will be a balance between desire and cost. The current market trials of new services are intended to demonstrate both consumer acceptance and willingness to pay. In the existing infrastructure serving the home consumer, commercial television broadcasting is unique in that it is a "free" service, essentially paid for by advertising. The real cost to the consumer is the hidden cost he or she must pay for advertised products, a price that covers the additional cost of advertising. By contrast, basic cable service costs the consumer about $300 per annum, a price that 63 percent of TVHHs are willing to pay for the better reception of broadcast signals and for the additional programs provided by the cable networks and the local cable systems. The declining rate of growth of subscribers to basic cable TV (see Figure 1) may well be influenced by the price barrier of $300 per annum, with one out of every three households where cable-TV service is available declining to subscribe. It is unlikely to be due to any lack of variety or the entertainment value of the programs offered. Pay-cable or "premium" channels are available to the consumer for an additional fee. Generally free of commercial advertising, each pay-cable channel costs about $100 per annum. Despite the convenience and variety offered, this additional cost appears to be limiting the growth of this market. Figure 1 demonstrates a low rate of penetration and growth for pay-cable networks. Over the last several years, the penetration of pay-cable has stabilized at 26 percent of TVHHs, or 41 percent of basic cable subscribers, having fallen from 57 percent over the last 10 years. While the number of pay-cable networks offered has more than doubled in the past 10 years, the average number of pay-cable networks subscribed to by the consumer has risen only from 1.5 to 2.0. From the above, it would appear that, for the types of programming and service now offered the consumer, the willingness or ability to pay is reaching its limit. Any further outlays by the consumer must therefore be based on more attractive programming or innovative services, perhaps made possible and economically viable by the NII. However, the NII only facilitates the delivery of information to and from the home, while new and attractive programs and services must still be made by the production and creative community. For any new services to succeed in the home market, the cost to the consumer will be of paramount importance. If the new services are attractive enough, the consumer may redirect current disposable income used for other services to acquire the new services.
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Page 105 Figure 3 shows the growth in consumer spending on the major entertainment services. Overall, these have increased by 90 percent over the last 10 years in constant dollars. The main use of the consumer's discretionary funds (71 percent) has been for basic cable and home video services, while the growth in pay-cable, the cinema, and pay-per-view has been minimal. In addition to the obvious value of basic cable to the consumer, the appeal of home video or video rental is interesting, because it meets a consumer demand for a direct choice of entertainment programming at a specific time. This suggests that if pay-cable, pay-per-view, and NVOD can be offered at a price competitive with the video store (about $2 per program), much of the video rental spending could be diverted to these services. Further, this diversion of funds can be effective only if a comparable inventory of programsperhaps 40 at any one timeis made available. Given these important conditions, an NVOD or pay-per-view service could enjoy spectacular growth at the expense of home video. For the program or content provider, significant economies in the number of cassettes manufactured and distributed are possible, because only a relatively small number will be required for distribution to the consumer. However, the consumer will still have to bear the cost of the cable system's right to transmit the program, together with the operational costs of storing and delivering the program. In summary, any considerations of a different infrastructure for the delivery of entertainment to the home should be judged on the basis of the cost to the consumer, however great the convenience of using the service may be. Figure 3 Consumer spending on major entertainment services, 1980 to 1993. SOURCE: P. Kagan Associates. Technical and Economic Feasibility It is a common mantra that ''people do not watch and listen to technology; they watch and listen to programs." While this is a self-evident truth, all systems for watching and listening to programs must pass through the critical funnel of technology. Experience has shown that the consumer is willing to pay for those applications of technology that offer superior performance and quality. The classic example is the market success of the compact disk. The music may be the same as that recorded on vinyl or audiocassette, but the quality of the sound is markedly improved, and CD penetration rates have been phenomenal. We discuss below the economic feasibility of some of the proposed services that the NII might deliver in terms of the cost to the consumer and the cost of delivering the services. Digital HDTV In pursuit of improved visual quality, the television industry has, since its inception, continuously strived to achieve better quality in the transmitted signal. If the desired gain in quality has not reached the consumer, it is because of the fundamental constraints of an aged analog transmission standard. The transition to digital transmission offers the prospect of higher-quality service to the home. In fact, digital transmission permits the selection of a quality of transmission appropriate to the requirements of the signal
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Page 106 being transmitted and its intended use. To this end, a basic digital transmission format has been developed, containing a hierarchy of related and scalable transmission formats, each with a particular data bit rate appropriate to the requirements of the signal to be transmitted and to the bandwidth of the system under consideration. The top member of this hierarchy is the high-definition television format developed by the Grand Alliance, a consortium of seven leading organizations under the aegis of the FCC's Advisory Committee on Advanced Television Service, or ACATS. This standard has been adopted by the Advanced Television Systems Committee, or ATSC. The original objective of Japanese research in 1970 was to develop a signal origination and transmission system that would provide the full quality of the cinema experience in the living room, complete with CD quality sound. When, in 1987, the FCC formed the ACATS, its mandate was to study and evaluate proposed systems, and to recommend a proposed terrestrial transmission standard for the delivery to the home of a greatly improved and advanced television service, intended to replace the present standard, all "in the public interest." The development work and the construction of a prototype system have now been completed by the Grand Alliance, and, following final tests of the complete system, the ACATS will be in a position to formally recommend a standard to the FCC by the end of 1995. It is already known that the system works, and works well. This first all-digital transmission system has been designed to be compatible and interoperable with the NII concept, as will be the lower orders of the hierarchy that may be used for the transmission of low-definition television, graphics, data, and text. The development work and the testing have enjoyed the active participation of CableLabs, a cable industry research organization representing all the major cable system companies in the United States and in Canada. The cable industry has researched the means by which HDTV can be delivered to cable-TV subscribers, and, in technological terms, is ready to implement such a service. Although representing a revolutionary advance in television technology, HDTV is not a new consumer service but rather a greatly improved and advanced television service, serving the same constituency of TVHHs and offering the same or similar types of programs as those transmitted today. However, with five times the amount of information on the display, with a color rendition at least the equal of film, with a wide-screen display similar to that of the cinema, and with multichannel digital sound, the sense of presence given the viewer has been likened to "a window on the world." While this paper is concerned only with the home consumer's interests, it may be remarked that the development of HDTV is a vital enabling application for a wide range of other services, including education, distance learning, medicine, printing and publishing, and indeed the whole field of video telecommunications. All these applications are compatible with, and complementary to, the intended use of the NII. Further, educational and medical services can be of great value to the consumer at home. Returning to the interests of the home consumer, audience research on the demand for HDTV is sparse, but a recent poll of 500 randomly selected adults is useful. When asked to rate in order of preference the value of 21 new and proposed digital-based services to the home, ranking each on a scale of 1 to 10, 51 percent placed HDTV in the top three rankings, followed by NVOD with 49 percent. All other video services received a much lower ranking. It thus appears that, once again, the consumer cares greatly about quality and foresees a market for HDTV in the home. By what means HDTV can be delivered most effectively and economically to the home, and at an acceptable price to the consumer, is discussed below. Interactive Services The perceived consumer demand for interactive services will clearly influence the future infrastructure serving the home. Apart from the present telephone service that employs symmetric information flow, nearly all other proposed services will require a much smaller information flow from the consumer than that delivered to the home. Such asymmetry of data flow is important to the economic design of the interactive service.
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Page 107 In the multichannel universe now developing, an interactive device is needed to enable the consumer to navigate with ease and speed among the options presented. While individual viewers have different and diverse sets of interests in programs, they all share a common characteristic. It is established that people, when faced with a large number of options, cannot make a choice directly but instead reduce the number intellectually to between seven and nine. They are then able to make a selection by choosing among this smaller number. Television audience analysis bears this out and shows that the average viewer selects a small group of program sources, typically four broadcast networks, perhaps a local independent broadcast station, and two niche market cable networks that respond to particular interests. In the future it will be important for the consumer to record and store favorite types of programs in the electronic channel navigator. Following this interaction, the navigator device may display only those upcoming programs that match the consumer's tastes. Electronic games require interactive responses at a low data rate. When games are played online against the program provider or other remote players, the infrastructure must provide for this communication. Home shopping services on cable require consumer responses made upstream. Ideally, these responses may take the form of individual and specialized questions, formatted as an upstream data flow on the cable system, rather than through the use of a telephone. Provision must be made also for demanding various and specific sets of textual data, whether it be particular stock prices, sports statistics, particular news items, or additional data relating to a program that the consumer is watching. It should be possible to record with the program provider particular types of information to be delivered on a regular basis and stored in the consumer's home for later retrieval. In all these cases, only a low bandwidth upstream data flow is required. Upstream commands for VOD and NVOD programs and for information about the programs should be accommodated by the cable system. Overall, cable and DBS are well placed to support asymmetric interactive applications, and unlike the telephone system, they do not have to be switched. The Clinton administration would like to see an NII that would allow individuals to be producers as well as consumers of information. Certainly such a facility would be valuable for the consumer who wishes to invest in distance learning or to access remote medical services or electronic publishing services. However, the great majority of consumers are interested in receiving a broad selection of mostly passive entertainment programs with the highest possible quality and at the lowest possible cost. Even with new services such as the Internet, which offers a remarkable range of information services at a rapid rate of growth, it is reported that the home consumer frequently uses it as an entertainment medium, spending much time surfing the World Wide Web for amusement rather than edification. The Consumer's Equipment in the Home Some 30 percent of TVHHs now have a computer that is used for nonbusiness purposes. Telecommunications, broadcasting, cable, and the computer are converging toward the use of a common digital technology. As television becomes a purely digital medium, it will also become a digital data stream. At the top end of the spectrum hierarchy there will be digital HDTV, and at the bottom end, a telephone twisted pair occupying the smallest bandwidth. In the home, however, the convergence will not be complete. The large television display will remain the appropriate device for the viewing of pictures and for entertainment however the signal is delivered to the home. The high-resolution computer, on the other hand, is designed for reading text and graphics, and for their creation and manipulation, with the viewer seated close to the smaller screen. Given their different functions and features, the two displays will remain separate devices, although they will, for some applications, have to be interconnected. Given the several digital data delivery media entering the homeincluding cellular, broadcast, cable, telephone, and DBSpracticality, economy, and convenience demand a single set-top box for the decryption, decoding, and processing of the signals for display. Furthermore, the increasing need for interactive upstream communication suggests that, if it should ever achieve universal penetration, the computer, with its associated telephone modem, is the most efficient location for the multisignal converter functions. The convenience of the
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Page 108 armchair remote control facing the television display will remain for the viewer of entertainment programs, but some of the switching functions it originates would be performed in the computer-based signal converter. In this concept, the leads from the terrestrial antenna, the satellite dish, and the cable feed would all terminate at the computer box, where appropriate circuits would process the signals for display at, in many cases, multiple viewing locations in the home, each requiring different signals for display. This aspect of convergence will minimize the cost of equipment to be acquired by the consumer. Given the rising rate of technological advance, it is inevitable that, in the future, incoming signals will be processed by a continuing stream of new or improved circuits and storage media. It is unrealistic to expect that the consumer will be able to replace the television set with the frequency necessary to accommodate the latest advances in digital technology. The display and cabinet in the TV set constitute 75 percent of the total cost of the equipment. While the display must be replaced once to accept the 16:9 aspect ratio of picture to be provided by digital broadcast and cable services, it then should remain in service for several years. The changes in signal processing equipment that will occur may be accommodated by some form of set-top box, equipped with modular components and circuit cards and provided by the program carrier. The consumer does not have to buy them, but in effect pays for them through a monthly subscription to the service, as is now the case with the cable services. This situation will obtain only during the introductory period of service, but as volume builds, the most popular services will be received by television sets or computers with integrated signal processing facilities. Delivery Media Prima facie, in the interests of overall economy, it would seem sensible to minimize the number of separate data delivery media entering the consumer's home, but the monopolistic dangers of a single carrier delivering all signals to the home are considerable, absent a strong regulatory overview. On balance, the merits of market competition for delivery of information to the home are compelling. Such competition, now developing between DBS and cable TV, where the programs delivered are similar, can lead only to lower costs for the consumer. What temporary advantage DBS may gain in quality of picture and sound is balanced by the local broadcasting availability, the number of programs offered by cable, and its interactive capability. Terrestrial broadcast service has the important advantage of being free of charge and has the vital attribute of localism, but it cannot match the variety of programs offered by cable. Developments planned by the telephone companies can lead to direct competition with basic and pay-cable services. However, the phone companies have recently shown a reluctance to quickly enter the television delivery business. A cellular video transmission system may also serve as a carrier of programs nominally broadcast by local television stations. The interactive capabilities of such systems would enable upstream commands to switch between program sources at a local switching node. In addition to providing a full range of all broadcast and cable feeds, the cellular system would enable the transmission of data, graphics, and compressed video to other subscribers, and enable access to many nonentertainment services conceived for the NII. In this scenario, the current local broadcaster would continue originating all local programming but would no longer endure the cost of terrestrial broadcasting. Some elements of a national infrastructure will remain common. The program creators and their products are sought by all. Some of them will remain independent, selling their programs on an open market to the highest bidder. The delivery media may acquire some program creators and thus gain from the vertical integration of their business. This has occurred in television broadcasting and cable but has not impaired the competitive market, because the consumer can always select another program carrier for personal entertainment needs. It is asserted that, in the interests of the consumer, an open and competitive marketplace for the delivery of programs to the home is essential. This is best assured by the existence of multiple content carriers.
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Page 109 Regulatory Issues As proposed above, we believe that the future infrastructure for communication to the home will develop in the consumer's best interests if competing information carriers vie for this business. Regulatory intervention should have the sole purpose of ensuring that such competition exists. Only where no competing carrier exists is rate regulation required. Where a new service to the consumer is uniquely proposed by a single organization, the regulatory authorities should act to encourage the entry of a competing entity offering the same service. It is further arguable that regulation should work to inhibit or even prohibit any single entity from owning or controlling both program production and program delivery operations, if such control results in the consumer being denied access to any available program source. Consumer access should be a prime consideration. Recommendations We believe that the services required most by the consumer include entertainment and local and national news. The consumer wants the highest technical quality of picture and sound and a wide range of choices of programming and expects these services to be available at minimal cost. The infrastructure necessary to meet these needs should have the following features: 1. There should be multiple competing delivery systems entering the home, where it is economically feasible. A governmental role in ensuring a level playing field may be appropriate. 2. The delivery systems should be able to carry all services now provided by broadcast, cable, DBS, and computer data networks. 3. The delivery systems should be able to carry a range of digital data rates, including that necessary for the FCC's initiative for HDTV service. 4. The delivery systems, as an element of the NII, following a period of innovation and standards development, should be interoperable with other elements of the NII, enabling access to nonentertainment and information services. 5. The delivery systems should permit interactive operation by the consumer, through the use of a simple interface. 6. The cost of delivering all services to the consumer should be such that universal access is practicable and affordable. In particular, the delivery of current terrestrially broadcast programs should continue to be free to the consumer. 7. The existing cable infrastructure, which is broadly available to almost all television households, should continue to offer a cost-effective path to a broadband component of the NII, which builds on its existing broadband architecture. 8. With the exception of Recommendation 1 above, no governmental role is foreseen as desirable or necessary.