Friday, February 20, 2009

Was America Ready For The Digital Transition?

I know that the digital transition didn't occur this past Tuesday, but it was intended to, and in fact 421 stations did switch off the analog service and went digital, although many retained what was known as "nightlight" service (allowing the stations to maintain an analog service to "inform unprepared viewers of the new transition date, or for emergency situations such as severe weather." This is in addition to the 190 stations that had made the switch before the original February 17th deadline. (This latter group includes all of the stations in the state of Hawaii which switched on January 15th to allow the dismantling of the analog transmission towers on Maui's Mt. Haleakala before the beginning of the nesting season for the endangered Hawaiian Petrel.) None of the stations that made the transition on or before February 17th was owned and operated by the four major networks (ABC, NBC, CBS, or FOX-Newscorp) as well as Telemundo, and the Gannett, Meredith, and Hearst-Argyle Groups (except for three Hearst-Argyle stations in Hawaii) which have stated that they will maintain their analog services until the June 12th deadline. The final total of 641 stations represents 36% of the stations in the United States. The question is whether the change in deadline was necessary.

The answer is probably. Nielsen Media Research has been polling on the question of consumer readiness for the digital transition since December 2008. They released their most recent results on February 18th of a poll completed on February 15th, two days before the original transition date. At that time 4.4% of American households – over 5 million – were described as "totally unprepared" for the transition. This is a significant improvement over the number prepared from December 2008 and indeed over the January 18th poll – the first for which I have the number of actual households rather than percentages. It does however represent a significant number of households.

Date

% Unprepared

Households

December 21, 2008

6.8

-

January 18, 2009

5.7

6.5 million

February 1, 2009

5.1

5.8 million

February 15, 2009

4.4

5 million +


Nielsen also provided percentages for various demographics: White, African-American, Hispanic, Asian, homes where the head of household was under 35, and homes where the head of household was over 55. The last two are of particular interest. Leo Laporte, who I consider to be my technology guru, suggested in one of his podcasts that in terms of age the greatest number of unprepared households would come from the over 55 demographic, and quite frankly he and some of his colleagues made some rather cutting comments about how these people would think that they had digital TVs because instead of having a dial on their sets they had push-buttons and LEDs to tell them the channel number. In fact the single group with the greatest preparedness for the Digital Transition was households where the Head of Household was over 55.


Group

Dec. 21, 2008

Jan. 16, 2009

Feb. 1, 2009

Feb. 15, 2009

Change Dec. 21-Feb. 15

White

5.6%

4.6%

4.1%

3.6%

2.0%

African-American

10.8%

9.9%

8.7%

7.5%

3.3%

Hispanic

11.5%

9.7%

8.5%

7.4%

4.1%

Asian

8.1%

6.9%

6.3%

5.1%

3.0%

Under 35

9.9%

8.8%

8.6%

8.1%

1.8%

Over 55

5.2%

4.0%

3.2%

2.6%

2.6%


Perhaps the answer to this seeming anomaly lies in the area that Nielsen studious avoided polling on – Income Levels. If we can safely assume that older Americans are more likely to be more affluent and have greater disposable incomes, while younger Americans – regardless of race – are less affluent, then it follows that they are both the group most likely to delay the purchase of a digital converter and the group most likely to need the financial assistance provided by the TV Converter Box Coupon Program, and therein lies a major problem.

If there is one aspect to the problems with the digital transition that can fairly be laid at the feet of the Bush Administration it is the Coupon Program. Administered by the National Telecommunications and Information Administration (NTIA) the initial funding for the program was $890 million, to be paid from the estimated $20 billion that the sale of spectrum following the conversion would bring in. According to Wikipedia this money was sufficient for 22,250,000 of the $40 coupons. The option existed to expand the fund to a total of $1.34 billion (33,500,000 coupons) if necessary. This was a fraction of the total number of households in the US (112 million). Since the act establishing the coupon program allowed each household to apply for two coupons, the expanded funding was sufficient to supply 16.75 million households, or just over a tenth of the households in the United States. Given that, while the act stated that "eligible U.S. households" could obtain the coupons it did almost nothing to define the term "eligible," this seems like a gross underestimation of demand. Which, as it turned out, it was. In December FCC Commissioner Robert McDowell advised, "those who don't need the government subsidy not to wait on that process before purchasing a converter box for themselves or as a gift for someone else. During the weeks it takes for the government to process coupon requests, you will lose precious time to hook up the box, check antenna connections, and start enjoying free digital broadcast TV right away." It was, to say the least, an ineffective plea. On January 4, 2009 the $1.34 billion funding ceiling for the Coupon Program was reached.

The demand probably shouldn't have come as a surprise to anyone, particularly given the current economic downturn. According to a Nielsen Media Research survey taken in August 2008, 25% of affected viewers (by which I assume they meant those without cable or satellite service who own TVs) intended to opt for the converters. By November 2008 this had increased to 38.3%. Complicating things was the problem of the 90 day usability period of the Coupons which were only usable through brick & mortar and authorised telephone retailers. Once the funding ceiling was reached new coupons could only be issued once outstanding coupons had either been used or had expired. The American Recovery And Reinvestment Act, signed into law on February 17th provides a further $650 million for the Coupon Program. Still it is not certain when additional coupons will be issued to those people who are on the waiting list for coupons – one estimate suggests that the new coupons won't be available until April.

Another problem is availability of the converter boxes. It is estimated that the currently available stocks of boxes will be exhausted by March 2009. In early February the Consumer Electronics Association estimated that there are between 3 and 6 million boxes available while Nielsen estimated that there were 5.8 million completely unready households in the United States, and that each household has an average of 2.8 televisions, meaning that there is a demand for over 16 million boxes. Manufacturers had apparently shut down production lines for the converter boxes, but restarted production when reports of the delay in the conversion began circulating. New supplies of converters are expected to become available in April.

If I were to make a prediction today about how things will progress over the next month or so, I would suggest a further major decrease in the percentage of people who are completely unready now that a large number of stations have actually switched off their analog broadcasts. Call it a "warning shot across their bows." Before this the transition was theoretical; with stations – including networks affiliates – actually making the conversion it suddenly becomes quite real. It is entirely possible, maybe even likely, that people who were waiting for their Converter Box Coupons will bite the bullet and buy at least one converter box at full price just so they can keep full service. That said, I am fully convinced that the delay was largely justified. Assuming an average four persons per household, that five million household figure represents 20 million people. That may be a small percentage of the total US population but it is still significant.

As for the Digital Transition in Canada, which is scheduled to occur on August 31, 2011, I am more than slightly pessimistic. My concern isn't too much about the consumer for a couple of reasons. First, since Canada is such a small market and so close to the United States, replacement of TV sets is almost certainly to be with Digital capable sets – TVs that can receive both the current NTSC service and the digital ATSC service. Second, Canada is amongst the most cable and satellite connected nations in the world. Arguably the percentage of "totally unprepared" households in Canada is quite low. No, my major concern is with the broadcasters and to a lesser extent the regulators. Until 2007 the transition to digital broadcasting was left almost entirely to the networks to decide – the intention was to leave it market driven. However what that has meant is that to this point only a handful of locations have actually made any progress towards conversion. Currently the three main Canadian networks (CBC, CTV, and Global) only provide the option of full service in Toronto and Vancouver, although service from one or another of the stations (usually the CBC) is available in a number of other cities. Most recently the CTV station in Calgary began broadcasting digitally in HD. Beyond that however there seems to be no movement in terms of making the transition. According to an article in the Toronto Star CTRC Chairman Konrad von Finckenstein rebuked broadcasters last year over the lack of progress in digital conversion and said that, "so far, the industry has not shown the sense of urgency that I think is called for right now." In the current economic climate, which sees Canwest-Global – the parent company of the Global network – faced with massive debt, it is expected that the industry will lobby the government to delay the transition. Moreover, the government has indicated that currently at least they have no plans to establish a subsidy plan similar to the American coupon system to aid consumers in preparing for the transition. I believe that by 2011 a high percentage of Canadians will be ready for our digital transition; I just don't know whether Canadian broadcasters will be.

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