David Smith, CEO of Sinclair Broadcast Group, on DTV Receiver Standards and the Future of Broadcasting

What vision do you have for Sinclair Broadcast Group over the next five years?

We will expand as a business. We will buy more television stations. We will buy more radio stations, if it suits our profile. We will explore every possibility for using the (DTV) platform for launching new businesses, be that Internet-related, over-the-air/Internet related, or other. We won't sit still. We won't go to sleep as others in our industry have.

Do you like television as a business?

Yes. I have seen it better. I have seen it worse. It is very cyclic. We have been in (television) since 1971. We have seen multiple recessions and multiple inflationary environments. The economy moves like the tide. It is easy to believe that the "street" doesn't understand that. There are those who think the television business is going away. But the people thinking that have not been in television for 25 or 30 years. It's very sinusoidal. It always has been. It always will be.

Many looking at cable, DBS, and the Internet like to say it's over--it's the end of the road for broadcasting.

It's not like a tubeless tire where you punch one hole in it and it all deflates. If the industry fundamentally fails, it will take a lot (to do it). I just don't see that happening.

Do you see the source of your programming--the networks--remaining on solid footing and capable of providing quality programs for the approaching era?

I don't think they are going anywhere. You look at companies like Disney or General Electric. They have billions of dollars invested in television. I don't see them waking up tomorrow and saying we don't need this kind of thing. Rupert Murdoch has ten billion dollars invested!

Now enter digital--some say high-definition--some say lower definition with multiple channels--some say lots of data. What have you decided digital means to you?

There have been, and still are, great expectations for what digital television can and should do for society. I think they were all predicated on the ability of over-the-air broadcasting to deliver a receivable picture. Our sense today is that we will transmit the picture and it will be beautiful, be that 480p, 720p, or 1080i. Regardless of what we transmit, it will be so much better than what we transmit today

The issue here is that it is not receivable.

I am sure the industry did not know that (condition) was going to happen. They had no reason to believe it and accepted on good faith that the recommendations from the developing organization (ACATS/ATSC) would work.

We still don't know definitively that the standard doesn't work. The only thing we know absolutely and definitively is that the receivers don't work. The receiver manufacturers have not necessarily caught up to the capability of what the standard might be.

That fact creates a whole other subset of issues. Suppose they don't want to make them (the receivers) work. Suppose they don't care. There is no longer any American TV manufacturers. They are all foreign companies. So, we can't say to them, "You must build a better receiver to get the full benefit of the standard." You can't call Philips on the phone and say, "You are going to build a better receiver or I will limit your capability of selling other products in this country." That is not the free-market, democratic, capitalistic view of the world. However, they (Government) could say: "If you want to sell television sets in this country, you have to be at a certain standard." That is no different than Boeing Aircraft being required to build airplanes to certain standards with certain capabilities. It is no different than General Motors building an automobile that has to meet basic consumption standards or any other industry which has regulatory requirements built around it.

What is so terribly wrong with the notion that the government would put standards on a receiver when they put standards on lots of other industries that are foreign-based. Mercedes Benz can't sell here without meeting certain standards.

Most of that regulation you mention is related to life threatening matters. Is television life threatening?

While not life threatening, it is clearly economically threatening. If you are economically disadvantaged, unable to afford cable or satellite, you are not going to watch television. Suppose inner city people in Oklahoma City could not watch over-the-air television and a hurricane rips through killing people because they didn't have television to know it was coming? So, maybe 5000 people get killed because they could not afford television.

You are talking about the public service aspect...

It's staggering and often goes overlooked. But it is a credible part of the entire infrastructure--a relationship between the television industry and society. It is a critical part of our requirement for having the frequencies granted (to) us.

So, you are saying that if you are required to be a public service, the receiver manufacturer must also meet the same criteria via some enforceable rulings?

I think it is fair that the receiver manufacturer have the (same) obligation to make something that works (as we do). It must work in a simple, efficient manner, with no additional cost to the consumer to get that product.

I want to clarify for our readers by asking once again whether you think the problem is the standard, or the problem is some insufficiency of the current receivers?

I don't think we know the answer to that, technically. You can compare the 8-VSB standard using the best and most current iteration of receivers today with corresponding COFDM receivers. When you look at the (comparison) you might conclude that the 8-VSB standard doesn't work.

You look at COFDM--the standard generally used by the rest of the world--and it works perfectly. Do you then conclude that (the COFDM) standard is superior? Or, is it the receiver which is superior to the current evolution of the 8-VSB receiver? We don't know the answer to that yet.

This is what we know for certain: If the current 8-VSB receiver is the best that there is--the best that it is going to be (or close to it), then 8-VSB will fail. If the current receiver for the COFDM standard is the best there is, and it is unimproveable, then COFDM is still a completely acceptable standard. The consumer would welcome getting pictures as easily as we do (in the demonstration) with COFDM in comparison to, not only NTSC, but to 8-VSB as well.

So, you are in a study period, still not ready to say that 8-VSB should be tossed out?

That is right.

Let's take it to the next step, presuming that you are not satisfied in "due time" by 8-VSB receiver improvements from the manufacturers. What then?

This is where the Federal Government can step in to say: "We see no evidence to convince us that the receiver technology of today is adequate to demonstrate that the 8-VSB is an acceptable standard. Therefore, the receiver manufacturer must commit somehow to saying one of two things."

1. We can radically improve the receiver and make it to be as good as COFDM, or

2. it can't be made as good

There will be no harm. There is no foul here. But then we will be able to change standards.

The dynamic that is in play is an interesting one. These TV manufacturers all build COFDM receivers. They work, they sell them, and life is wonderful. The political and economic question for them is: Why would I want to invest my money to go fix or create a chip set that solves all the inherent problems within the 8-VSB standard? What is the motivation?

The world knew that we were conducting these tests. We requested in writing of CEMA, of the ATSC, and directly of the TV set manufacturers to give us (for these tests) whatever best technology they have. We told them we would sign nondisclosure agreements. "You can come into the USA and put your product into a black box so no one can see it. But do the following--put your receiver alongside the other (COFDM) standard and show us how it compares. The consumer would do the same and say: "That is acceptable; that is not."

That is what is in play now. If a consumer saw a COFDM-received picture versus an 8-VSB-received picture today, they would say: "I want the COFDM." Why? Because it's easy to receive. I don't have to fool around with it. I don't have to go through all of these machinations. It's like a radio. You plug it in. Wherever you go you can receive radio. That is what you get with COFDM. You cannot do that with 8-VSB. I am not sure you won't be able to, but not one (company or organization) has volunteered to come forward--nobody from CEMA--nobody from ATSC--has said "we have a better receiver that will replicate and be as good as COFDM, and will serve the consumer as well as COFDM."

Robert Graves, Chairman of ATSC, sent a letter to all broadcasters recently saying, among many things, that you are making false assumptions, you are irresponsible, and that we should place our faith in 8-VSB and the improvements forthcoming.

Faith is belief is something for which there is no evidence. We live in a world where you have to have evidence. You go to church and have faith. As a company representing thousands and thousands of shareholders who have invested millions and millions of dollars, faith doesn't cut any ice with us or with them. "Show me!"

Let's go to the next phase. You say we have a real problem. Now what happens?

There are several courses. I think the first is that the broadcasters recognition. Those who have come to see this have walked away in shock and disbelief over how poorly it performed. By "it" I mean the receivers currently in existence in the marketplace, not the standard. Like I say, we still don't know what the best is yet from 8-VSB.

Will you set up a timeline for delivering a new best?

It will be very difficult for us to set up any timeline. I think the current track will kind of take us in this direction. Everyone who has come to see the test, and even those who have not, believe that the efforts made by us are clearly motivated by a single purpose, which is the ultimate purpose. That purpose is this; when I send a signal, I want to make sure that without conditions attached it is received by the public. That is our role in life. That is the purpose for the test--to demonstrate that it doesn't happen, and to go one step further to do what we can to insure that it is exactly what does happen. Period...end of discussion.

A lot of people have questioned your motives on why you started this process. Can we clear them one by one?

Let's do that.

It is clear that changing the standard will open up the FCC process to some degree. It's likely many improvements to all parts of the standard will be introduced. Many claim that the whole process, i.e., a new Docket and all the submissions to follow guarantees at least a three year delay-to-market for DTV, or more. They say this delay is your prime motive. How do you answer that?

It is not in my interest to delay. Go back to what we have said publicly. I have also said that the faster we do this, the better off we are. That was my position then and now. I want the opportunity to use the (digital) platform. I am not interested in delaying, period. I am also not interested in launching a platform that does not work. It is the functional equivalent of me manufacturing a car without wheels. What's the point?

Others say David Smith thinks that digital itself won't work as a business.

I absolutely see digital as offering multiple business opportunities. I have said that also publicly.

You would not do anything to drive a knife into digital using any means?

I have a singular interest in making sure that it works the best it possibly can. Period. I have no reason to have any other motivation. I don't want to be stuck in a single income business, period. That is the business we are in today. We will not survive long term as an industry if we only have one source of income.

Still others say, well, maybe he has some business model relying upon portability and for this reason promotes COFDM. But that is not "our" business and why should we care?

It is not as much portability as it is the ability to have receivability. If I wanted to take the futuristic television set that has a computer in it, I don't want to find myself in an environment where I can only operate it with a 30 foot mast. That is going back to the 1950s. I want the freedom to take that device, whatever it is, and go sit in my car, on my porch, or on the beach and watch television and receive information. I don't want to have to carry a mast with me everywhere I go. We believe...and it's belief...I can't substantiate it...that there are business opportunities contained within that capability just as there is with radio, pagers, and portable telephones. The notion of providing a ubiquitous delivery platform creates opportunities. It's our burden and responsibility to go prove that businesses can be made from it. That is what I want to do.

One of the darker accusations thrown at you is that you don't have enough money to outfit all the stations you own.

The people who say that are incredibly naive, and are doing a disservice to the industry. All one needs to do is to look at my balance sheet and know what I am capable of doing tomorrow. That is just ATSC and other industry warble who have committed emotional capital to the creation of the standard. They will do whatever it takes to figure out how to preserve their role in life. My view of that is: "I am not concerned about your role in life. You were a paid/hired gun to create a standard. You did the best you could and we don't know that it is not workable yet. But the only thing we know today is that it doesn't work." The idea that people would want to propagate disinformation for the purposes of trying to support their (own) position is not how they should play this game. If your position is supportable, let the facts determine what the truth is.

They say, well that sounds good, but Sinclair withdrew from the NAB, and you're not a member of the ATSC. You are not a team player.

We never were a member of the NAB. We had one station that once was. We are about to join MSTV because they clearly are a greater leading technical organization than any other out there. Our technical view of the world needs a place to be heard. We think MSTV is a better place to have that done. They have more technical capability than most. We want to propagate a business agenda that says, "Let's explore all the technical things we can do with the (DTV) platform for the benefit of the industry." MSTV is the place to do that.

Still another challenge to your motive points to your Acrodyne Investment. They say that Acrodyne is not technically up-to-speed and delay would only benefit that investment by permitting catch-up.

We bought an interest in Acrodyne because we believe that digital television is a real business. Why would I go and invest millions of dollars unless I believed that digital television can survive. I must be stupid. I may not be the brightest guy in the world, but if I believed that digital television was a dead issue, I would not have gone out and bought a transmitter company. I bought the transmitter company because I believe, philosophically, that there are better products to be made, and at some point in the future there will be a need for a better kind of transmitter to accommodate all the things I want to push into the marketplace. It only made sense to us, as the biggest buyers of transmitters in the country, to be linked directly to a technology company and design the technology ourselves, and then make sure that that transmitter can accommodate the technology we want to push through. That is pretty basic.

Are you at the cutting edge of technology with Acrodyne?

Not yet, but that is what we are going for. We are going to fix it to the point that we can introduce technology we think will be relevant with digital television.

Do you have any financial interest in any company that can benefit from the selection of COFDM?

We have been accused of having investments in everything. I can assure you we have no investments in any TV set manufacturer, be it Zenith (now Lucky Goldstar), with their 8-VSB patent, or anyone else. It is not something that is an interest to me. The TV manufacturing business is typically a small piece of larger companies. I would not buy Panasonic because it was going to make a TV set for the United States.

What is the next step that must be made for you to propagate this understanding? Or have you already hit a critical mass?

I am not sure what critical mass is. It may be 200 or 300 television stations. Where is the FCC's obligation to look after the public interest? That is their role in life. If they are convinced that it does not work, they may have to step in and say, "You (manufacturers) will do this by this time, or we will consider changing the standard." That is fair. We think that is a reasonable process.

Whether the FCC does that of their own accord, or Congress instructs the FCC to do it, is irrelevant. The end result must be that the receiver manufacturers are called to task for producing a product that doesn't work in a manner that is acceptable to us--the industry it serves.

Pioneer H/DTV broadcaster WRAL and others who have been transmitting 8-VSB for some time don't publicly say that they have found these same results.

It is so political that many who have come to the same conclusions as we have remain quiet.

Won't people--the consumers--take the extra effort to get the signal just as they did in the beginnings of the NTSC business?

There is a difference today. When NTSC first came out there was no cable, no DBS. They had no choice but to accommodate (to receive it). You can watch my television station today if you want to pay (cable). Let me give you a worst case scenario. If over-the-air television fails due to the lack of public interest in accommodating outdoor antennas, those who cannot afford cable or satellite--the people who live in apartments above or below ground--will not be able to get over-the-air television. They become a permanently divided class. They will never have over-the-air television (again). Think about what it means If over-the-air television becomes relegated to a cable delivery system. In downtown Baltimore an unregulated AT&T/TCI owns the franchise which covers the inner-city. What happens if they said tomorrow they are not going to put on CNN's news, or WBFF's news, or anyone else's news. You have the John Malone-Leo Hindry-AT&T news of-the-day. What happens to the notion of free flow of information? Any country run by dictators controls the information coming to your house the best way they can. That is not a good thing to see happen.

You are saying that the democratic function made possible by free television is at risk if the receiver is not improved?

Yes.

I am still not sure I see what you think the next move is.

We must finish testing for the public purposes. We are then going to expand for the express purposes of creating statistical relevance. We are then going to issue a report that is going to say "here is what we have concluded using the best receivers of today." It will be contrasted against the current iteration of COFDM receivers. I think what happens then is that we will start to draft up a petition that will invite the FCC to rethink the issue. If the FCC says, "We are not interested," the next step will be the House and Senate commerce committees. In our view they are ready to hear us if for no other reason than 'seeing is believing.' We are beyond the faith phase. You can see that it doesn't work. You (Congress) will then have the ammunition necessary to make an informed decision about what works and doesn't work. They couldn't do that before because nobody could show them one or the other. All of the previous demonstrations of 8-VSB were fabricated in a way that is not consistent with the way society lives. 'Outdoor masts' is not consistent in the inner city with the way the masses live. The extent to which you conduct the test with that as the initial condition makes it erroneous.

The resistance you get from the industry in part comes from the political protection for Zenith (the US contributor) and the 8-VSB investments made in good faith by companies relying upon the stability of a FCC standard. Right now there is a build-up of new inventory of DTV sets for the fall and Christmas season, said by many to be the 'make it, or break it' season for DTV. Some say that if DTV loses its momentum, little as it is, it would be a lost cause for this generation.

I think the latter is a tactic designed to create fear for the support of what might be a failed standard. As for the investment already made...the entire wireless cable industry just changed the standard a few months ago. They changed it to COFDM. The financial consequences are worth noting. If you followed that industry (you would have seen that) most of the players were bankrupt because the standard they were using required them to be only a line-of-sight service. You had to go to a house, put up an antenna on the roof to receive the 200 channels that would compete with cable. With that line-of-sight requirement Wireless Cable was limited in reaching enough of the marketplace (to succeed). If you were behind a hill, no line-of-sight. If you were behind a building, no line-of-sight.

They changed the standard (to COFDM) and these bankrupt companies, then trading for 29 cents to a dollar, were all absorbed within 30 days by larger companies, like WorldCom and Sprint.

Are they now more like broadcasters because their signal is more generally available?

That is exactly right. They are now portable. They are now the functional equivalent of telephone at 2 GHz. When that happened I ordered my broker to buy those stocks and we literally made millions on that in two weeks. Why? Because we knew what the technology meant, as did the telephone companies, who were also behind the process.

Are you suggesting that the broadcast business may pay for their DTV transition through stock appreciation coming from their making a COFDM decision?

One could argue that. That is not bogus and a totally rational business reason to do COFDM. It has been demonstrated from the market perspective to be worthwhile. The back haul business for news has also gone to COFDM. You won't need 30 ft masts on the trucks anymore. You will be driving down the road talking to the television station. You won't need helicopters for chasing criminals and gathering live traffic reports. That is what that standard offers. My belief is that as long as we deliver the message properly to the investing public about all of the new capability with over-the-air television, the value of our spectrum space would escalate. The tide could raise for everyone.

How do you compensate the consumers who already bought an 8-VSB receiver?

The cost of replacing all those sets is no more than a rounding off error today for even the smallest of TV companies. Say there has been 15,000 sets sold mostly for DvD display purposes. Nevertheless, if you had to replace them all... Let's say in the state of Maryland there are 5,000 sets. As a broadcaster how could I not look at paying those people out of my own pocket to get the longer term business opportunities to float all these boats. I am not volunteering that, but I am saying that if I have to spend half a million dollars to replace all of these TV sets, I'll write that check because I have the opportunity to theoretically make billions. I'll take that gamble all day long.

Let me once again make clear that this is not about Sinclair being against 8-VSB. I could care less what the standard is. Sinclair could care less what the standard is. All Sinclair wants is the ability to go buy a DTV set at Circuit City or Best Buy, go home, plug it in, attach a dollar antenna to the back of it, and get a perfect picture. I don't want to have that picture disappear when someone walks around the room or when an airplane goes by. That is all I want. Nothing more. Nothing less. I want to be able to take a computer from my office, sit on my front porch, lift an antenna, and receive a letter of other business tool I need from my secretary from over-the-air. I want to be able to receive that without using satellite or the 2 GHz spectrum (that just got fixed by the wireless guys). I want to be able to use my own (spectrum).

Are you not concerned over the reduction of the net digital payload that comes with choosing COFDM?

That is immaterial to us. And, oh by the way, I am not sure that I won't be able to double the payload with an advance in technology in years to come.

We're back to faith in technology.

The only thing we know with absolute certainty is that 1) the standard doesn't work as it is being delivered to us today, and 2) there is no mandatory, required administrative agency saying to manufacturers that "you must produce the standard that does the following..."

There is the risk that the free market will not produce the standard that works because it doesn't care. The ATSC is in a role which I do not fully understand. The TV set manufacturers should be looking to the ultimate players for their support, which are the people who have the money at stake. The ATSC has no money at stake. Frankly, the ATSC is not made up of people from my industry. It is made up of people who have nothing to do with my industry. I never understood why IBM, Microsoft, Intel, and half a dozen other companies with nothing to do with my industry are involved. They don't sell spots. They don't deliver news. They don't put on TV shows. I don't know why they should have any relationship with what the standard should be.

This appeared to accommodate those who have a convergence vision.

I have no problem with convergence vision. The bigger question is: Has the industry abdicated its responsibility to its shareholders and to the public and said, "We don't care what happens to us. We are not going to be in control of our own destiny. Somebody else will dictate how that will go." If they have done that, that is fundamentally wrong.

At the same time I also recognize that there is a direct reason for the computer people to want to receive what we transmit. But that does not mean they should be the primary driver of the standard. If the TV manufacturers decide not to invest in the 8-VSB standard and decide not to make receivers better, or as good as the other, then there is the risk to TV manufacturers that the computer guys will do it.

Do you think that broadcasting is the right pilot business for DTV? Should broadcasters be the first pioneers?

I agree that the guy in Montana who makes $100,000 a year as a company is at far greater risk being a pioneer than the guy who makes $100 million in New York City. The other side of that is that if he wants the opportunity to be on a different playing field--one that is unstoppable in coming--he has to be able to compete on that playing field, or die. The $100,000 a year guy could make the decision that he cannot play on that field and say, "Please buy my business." Someone will who is prepared to go out on that (new) playing field for this so-called opportunity.

If we get a standard that can easily be received, then the local broadcaster will help drive that market. It will be in our own self-interest because Circuit City and Best Buy will come to us and say "We want to buy time on your television station." We will be doing news stories about it. We will do demonstrations. We will make it happen. But it is very difficult for us to go out and push something in the marketplace that doesn't work. They (the public) is going to call us and say, it doesn't work. What are we supposed to do?

There are people who believe that the advertiser will pay more for HDTV spots.

I am not one of them. I am the largest single advertiser in Baltimore in newspaper and television. In a separate independent business I spend more money in this town than anyone else. I am in the car business. I have more than 30 dealerships. I sell six times more cars than the next largest dealer. I have 25 tire chains (stores). I won't spend more money for advertising because the picture is prettier.

Would you spend more money if you achieved more response from each picture that is shown?

Absolutely. But I don't believe I will get that response. In my view there is a big difference between 480p and NTSC, especially if the 480p is in widescreen. But the gap between 480p and HDTV is microscopic.

The highest-end of the market withdraws much of its demand if not convinced it is getting all that is potential. While they may not perceive the difference either, they are convinced from magazine articles that 1080 is greater numerically than is 480. That larger number is what they will go shopping for and expect to have delivered to their home in the digital signal.

Where you separate that from reality is when you go to a store and flip between 480p and 1080i, and don't see any difference...

The only thing that changes that dynamic is when you have a preponderance of large sets. There is an income bracket that can afford them, but it is not middle America.

Like any war, you don't know the outcome until you have fought the last battle. We are of the view that this is a war which is mandatory--it has to be fought because our survival is a direct function of our success.

Have you found some good data broadcasting business applications?

Absolutely. But I am not going to articulate on them now.

Many with whom we talk simply have no data business vision and their eyes glass over when we ask.

I would suggest to you that those who glass over are those who have been asleep most of their lives. They are the people at the end of the train, not the front of the train. They are the last to arrive at the party. That's OK, it just makes it much easier for everybody else who is on the fast track and who explores and takes risks.

You may do a great service by illuminating the data broadcast business for those who don't see it.

I would suggest to them that they look around to those absorbing spectrum. There are a few telephone companies who just absorbed the entire wireless cable spectrum in 30 days.

The original petition to the FCC said, "don't give away our spectrum to land mobile." Now we are threatening to go through another two or three year process straightening out these issues you have raised. What about other people wanting that spectrum and, again, claiming your move is just a delay tactic?

That deal has already been done. The car has already been sold. You can't take it back. All we can do is modify it.

I think this is lost on a lot of people who do not understand the science and the technology of it. If the ATSC standard is this wide (gesturing with arms wide open), the transmission is just this wide (gesturing with two fingers). The rest of it is just fine. It is only a couple percent of the entire standard that happens to determine whether it is receivable or not. All the other science is fine. That little bit of it is a card inside the transmitter. That's all. The worst case is that it is $35 to $40 thousand for a modulator. Then its done.

People ask, "What if I go ahead and buy a (DTV) transmitter? So what. Go ahead and buy it. If you have to change the modulator, or change it and look at it as a cost replacing a Klystron tube.

Let me sum it up. There are three questions raised:

1. What happened?

2. Are they going to fix it?

3. Who is going to guarantee that they fix it?

These questions are raised for the singular benefit of the public. I am the byproduct. I happen to be the guy with the obligation to deliver it to them. But the public is the ultimate beneficiary, not me. I am the beneficiary only if there are other business applications for the digital platform. I am prepared to take the gamble to find that out.

Have you talked with the other group broadcast owners regarding these issues?

About this. yes? Everyone of them.

What are they saying?

They are in shock.

Are they receptive to what you are suggesting here?

Absolutely. I have not found anyone who isn't. How are you not receptive to "it doesn't work"?

Thank you David Smith.