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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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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 services—video cassette
recorders,
compact disk players, basic cable, and pay cable—into 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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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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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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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 programs—perhaps
40 at any one time—is 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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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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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
home—including cellular, broadcast, cable, telephone, and
DBS—practicality, 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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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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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.
Representative terms from entire chapter:
home consumer
