DC: What does the HDTV business look like today? Or, do
we call it the DTV business?
GS: We use the term HDTV around here unless someone forgets. There is a
camp of people that I put you, Peter Fannon (Panasonic), and Dick Wiley (former chairman
of FCC who headed the FCC Advisory Committee on Advanced Television Services) in who are,
among others, the HDTV true believers...and you have been for at least five years. I think
most in the DTV Pioneer's Academy would fall into this category. We (CEA) believe in HDTV
in all of its glory. There are people at Circuit City and other retailers who would agree
and say, Lets start with the best. That was defined for us in some of
the format battles going way back around the time of the multicasting issues. But HDTV is
what we believe in.
DC: Is it living up to our beliefs?
GS: In many ways HDTV has exceeded our belief in terms of its popularity and in terms
of its beauty. It has not come as quickly to broadcasters and cable as we would have
hoped. But people love it, and satellite has provided close to enough HDTV. There are
announcements showing up every day now about channels coming on. Certainly, sports
programming broadcast on the networks has been excellent. In terms of the dollar volume
traded at retail, it is huge. We projected 2.1 million units and wound up at 2.4 million
units in year 2002. That is beyond our forecast. That is spectacular. So, in terms of
consumer acceptance and dollar volume in sales, in terms of consumer appreciation, some of
the beauty in the sporting events, and some of the satellite channels it has done
terrific. In regards to sale of tuners for over-the-air television, locale stations going
to it
it is not proceeding as we had anticipated. I think we were either naïve or
optimistic in predicting how local broadcasters would embrace HDTV. In reality when
someone is relying on an over-the-air antenna that means they are not a satellite or cable
subscriber and suggests that they are the lower income people. That is not the group of
people who are most likely to go out and buy a HDTV receiver. So, our assumptions were
wrong. We also didnt assume there would be such a strong DVD market, which would
drive HDTV (monitors). Clearly widescreen movies in DVD are clearly the biggest driver of
HDTV sales.
DC: Do you think there will be some catch-up in the OTA
tuner business and in your estimation what has been the cause of it not meeting
initial expectations?
GS: Looking at the history of it the manufacturers first thought that integrated TV
sets were the way to go. Then we had this format question that was raised by Sinclair, and
the manufacturers hesitated. They said that they believe in HDTV but "we will sell
monitors" until this issue is resolved. Sinclair single-handedly set back the
transition to over-the-air HDTV not by one year, as several people believe, but by several
years. Manufacturers discovered that people wanted monitors and, for the most part,
didnt want to buy integrated sets. Because they were not buying integrated sets
broadcasters held back even after the standards issues was resolved. So, Sinclair was the
one that hurt the broadcast transition more than any other entity in the United States.
Quite frankly at that time the FCC hesitated and was not very strong in putting down
Sinclair. Sinclair caused some real problems and a lot of the blame goes to them for
trying to switch the standard to COFDM. It was wrong at the time because Sinclair had an
interest, and still does, in delaying the transition to digital. Their public filing
discloses the fact that they will benefit as long as analog is around because of their
other manufacturing interests.
DC: I understand that the manufacturing business you are
referring to is all but out of business and insignificant.
GS: Yes, but at the time Nat Ostroff, their chief technical officer, was out to change
the standard.
DC: Where are we standing now in integration vs.
non-integration of ATSC tuners into monitors?
GS: The FCC has issued a mandate for tuner integration and manufacturers intend to
follow the law.
DC: You are on record for standing in opposition to this
FCC tuner inclusion mandate. Some folks went so far as to say that you went over to the
dark side. What was that all about?
GS: We opposed the mandate. We continue to oppose it in a law suit because we
dont like mandates in the first place, and in the second place we thought the FCC
exceeded their authority. Thirdly, we thought the tuner mandate was the incorrect
approach. We think the issue has to do with cable and programming and the marketplace
would follow. We have come a long ways towards solving the cable issue. But a mandate
which affects 15% of American homes (CEA claims only 15% are dependant on OTA) and have
everyone pay, especially with the large patent royalties involved, we continue to think
that is improper. Having said that it is the intention of every manufacturer to follow the
law.
DC: You mention large royalty figures. Are those numbers
outside of the norm?
GS: I dont know what the norm is. I heard that Zenith is asking $14 or $15 for
their royalties and Thomson also has patents. There were five Grand Alliance members who
each have patents involved.
DC: So, when stacked up there is significant money
involved?
GS: There is a disagreement between the broadcasters and set manufacturers about the
cost. Broadcasters talk about the cost of raw materials. That is like pricing a restaurant
meal based on the cost of the raw materials of the food.
DC: Where does this suit stand today?
GS: It is in the Federal court of appeals. I dont believe oral arguments have
been scheduled yet. I assume they will be in a few months.
DC: Lets assume that your appeal is unheard and
tuners are included and the cost is burdensome. What does that do to the over-all market
pace?
GS: We have not gone that far since that involves a lot of highly complex factors and
individual manufacturer pricing and competitive decisions. There is no question that the
more a product costs the fewer consumers buy it. What keeps consumer electronics prices
low is intense competition among all sorts of features.
"What
has made the FCC tuner mandate and law suit less important is the cable compatibility
agreement." |
What has made the FCC tuner mandate and law suit less important is the cable
compatibility agreement (where all manufacturers have signed the PHILA agreement with
CableLabs). Virtually every manufacturer has indicated that including OTA tuners is not so
burdensome as long as they are putting the cable compatible features into the set anyway.
Manufacturers will be rushing to meet the cable compatibility standard once there is a
clear indication that it is going to be accepted fully by the FCC.
DC: Is there any question?
GS: Not that I am aware of. It was just filed a week or two ago and people are studying
it. But in every meeting we have had there is every indication that the policy makers are
very happy that the two industries came together on this. There is no question that others
have the right to comment on it.
DC: In explaining this agreement to the consumer, how do you sum it up?
GS: In a couple of years you will be able to buy a cable-compatible HDTV set that will
work with virtually any cable company in the nation. To wherever you move you can be
assured your set will be plug and play.
DC: The only feature that seems to be out of that agreement is the interactive
part of it. Where was the bone of contention on that?
GS: It is not a matter of there being a bone of contention. We agreed that it is a
complex issue. We said, "Lets take the biggest bite and develop some of the
main principles for one way." We resolved tough issues like the encoding rules and
what they would be. All of those would easily apply to 'interactive' as well.
'Interactive' raises other significant issues, such as where the intelligence lay--the
cable system or the TV set--and what are the rules when there is intelligence in both
places? Its the question of who is king of the road? What does the set have to
respond to? It is a very complex and will take some serious discussions with the cable
industry. It is going to take the will on behalf of both industries to resolve these
tougher issues and a desire to provide a truly interactive product. That is what is
ultimately in the consumer's interest.
DC: It took a while to get to this agreement. What were the sticking points
along the way?
If someone boycotts HDTV in this country they do so at their own peril. |
GS: You have no idea what "a while" it did take. This agreement has
occupied 20 years of my life in the consumer electronics industry. In the early 1980s we
tried to define a compatible analog set. We had a draft pamphlet which we had agreed upon.
We even had a standard in which RCA had invested a considerable amount called multiport.
But cable companies didn't follow. There is also a mandate (now) from Congress on this.
There were a lot of efforts (leading to the agreement). There is no question that we have
here two industries who felt burnt by each other. There were a lot of missteps along the
way. The credit goes to a lot of companies involved, especially from Comcast and
Mitsubishi, who worked very hard. They led a team facilitated by CEA and the
National Cable Telecommunications Association. They worked through a whole range of highly
complex issues. In the end everybody gave a little bit.
What is not part of it (the agreement) is the ability of the cable company to turn off
a consumer electronics' product (called selectable output control). This was a very
grievous concern to manufacturers. It was part of the licensing agreement that CableLabs
was insisting upon. We felt it was potentially very harmful to our consumers. That is now
off of the table and will not be a part of any of these agreements in the future. We had
to swallow hard and accept the content copyright restrictions which the Motion Picture
Association had sought in the 5C license. That was very difficult for us.
DC: What were the most difficult issues?
GS: The issue of content protection, selectable output control were extraordinarily
difficult to resolve.
DC: Is the position of the consumer electronics industry that "we don't
like anyone but our customers turning off anything for any reason?"
GS: We managed to have an agreement without selectable output control. They have agreed
to it.
DC: Were the content people involved with that decision?
GS: The MPAA had sought and obtained things in the 5C license, so they will have to
speak for themselves. My guess is that they were pleasantly surprised? Jack Valenti said
that he was "pleased" that the CE industry is calling for the FCC to adopt
encoding rules. The MPAA has not responded negatively, just that they were pleased that we
are calling upon the FCC to adopt encoding rules.
DC: For those who are disciplined on following the rules of "fair
use" copying how are the copy protection issues shaping up?
GS: The way it is shaping up is that you will be able to shift content around your home
but you can't ship it out over the Internet to other people.
DC: I think our people would be in complete agreement.
GS: There may be an exception in the case of a pay-per-view event where you are paying
to see a live boxing match or other value event. (In this case) you are paying to view it
once and not to own it. That is what those copyright restrictions, which we have agreed to
in the encoding rules, cover. It depends upon what you are watching. If you are watching
free over-the-air broadcast, you certainly have the right to record it and view it as many
times as you like. With pay-per-view you just have the right to watch it.
DC: How soon do you expect to see a HD-DVD on the market?
GS: My guess is 2004, if not earlier. Joe Flaherty (the father of HD in this nation) is
very high on one of these companies.
DC: Are the war jitters causing any contingent plans in manufacturing or
marketing to react to any shifting attitudes in this country?
GS: In any business in the United States today the issue of war is a factor--an unknown
one. There is probably a greater focus on the economy than on war. We are in a tough time.
Everyone is hoping that 2003 will be better. But no one is looking at major growth in any
industry. We are hoping for rather modest growth.
With HDTV, though, we expect double digit growth. HDTV is one of the few bright spots
in the entire US economy.
DC: There are some of us who believe that HDTV has enough demand going for it
that it will sweep other tangential businesses, and those made popular through it, up
and make at least some measurable contribution to the economic recovery of the
nation. Does anyone there see it that way?
GS: I think it is a positive factor. I would not say that it is going to lift up the
whole country alone. HDTV is certainly a bright spot.
DC: What can government do to advance the cause of HDTV?
GS: Right now we are hoping that the FCC will move forward rapidly with the cable
compatibility agreement. That is the biggest thing in the short term. In the long term I
think we have to hope there will be something worked out between the broadcasters and the
cable companies on 'must carry.' If not, that is something the government
may have to step in on. Other than that I am not sure of the appropriate role for
government right now. The broadcast flag issue has to be resolved.
DC: CBS has threatened to withdraw a year from HDTV delivery if no agreement is
reached on a "broadcast flag." What is your comment upon that filing from Viacom
which we reported on a few weeks ago?
GS: We are very disappointed that CBS has taken that approach. You know, for us CBS has
taken such a phenomenal lead in HDTV...and we don't think it is wise to blackmail the
government. It is a questionable strategy in terms of its effectiveness. It is also of
great concern among us who have worked closely with CBS all of these years as a great
leader in HDTV.
Of course, we value CBS's contribution on HDTV but we don't believe that one network is
going to single-handedly make or break HDTV. The fact that cable and satellite programmers
are rushing to HDTV, and with the success of pre-recorded formats (namely the DVD)
indicates that consumers are rushing to the highest quality video formats. If someone
boycotts HDTV in this country they do so at their own peril.
DC: Thank you Gary.
HDTV Magazine will be there! I will inform you by email later where we will be at some
specific time. I would love to meet you and get to know you personally and
introduce to you some of our new marketing and research people. We are also meeting
face-to-face for the first time in Las Vegas. If you can't make it to CES I will be
reporting on the events and news to you from the press room most every afternoon of
the show.
