In January 1987, television broadcasters tried to rent a monster called HDTV to do a little dirty work. Then they were surprised when the monster would not go back into its cage.
The broadcasters were trying to head off a power play against them at the Federal Communications Commission. The people who make and sell beepers, pagers, and portable telephones wanted the FCC to give them more room on the airwaves for their services. They wanted to use several channels of the UHF band allocated to television broadcasting.
Broadcasters could not deny that cellular mobile telephones were becoming extremely popular and would soon need more channels to meet consumer demand. They could not deny that pocket pagers were extremely popular and would also need more channels. They could not deny that a single UHF television channel could provide bandwidth for hundreds of telephone or pager channels. And they could not deny that UHF television was a marginal business at best, long overshadowed by network television and recently by cable channels.
Since these things were undeniable, the National Association of Broadcasters—which consists mostly of independent stations and network affiliates broadcasting on UHF channels—had to find a way to obscure them. The NAB'S answer was to show that the broadcast industry needed to save those unused channels for a wonderful new service that was just coming along—high-definition television, or HDTV. The association got a special FCC license to demonstrate HDTV in Washington, D.C. Broadcasts on two unused UHF channels went to receivers installed—with a fine sensitivity for power—in the offices of the FCC and in the U.S. Capitol.
Edward Fritts, president of the NAB, proudly demonstrated the wonderful pictures and high-fidelity sound to regulators and lawmakers. If UHF channels were taken from the broadcasters, he said, that would "preclude America's broadcasters from developing HDTV as a free over-the-air service to the nation."
This monster called HDTV was effective. The NAB easily achieved its short-term objective. The raid on UHF channels died quickly. But the broadcasters had freed a monster they could not control, one that would come back to menace them worse, to compete with them. The HDTV picture is remarkably sharp. Its superiority to conventional television pictures is obvious and makes people say, "Where can I get one of those and how much is it?" That is what congressmen were saying as they walked away from the NAB demonstration.
But the congressmen learned that this new technology, with all its appeal, with all its promise to revolutionize television the way color TV did in the '50s and '60s and the way videotape machines did in the '70s and '80s, was MADE IN JAPAN. It was a 100-percent Japanese product, developed by NHK (Nippon Hoso Kaisha), the Japanese National Television network. Notwithstanding Fritts's promise, U.S. researchers were still in the labs and showed no signs of emerging with a product to sell.
This was in 1987, when the trade deficit with Japan was reaching new heights, and the power of the trade deficit as a political issue was growing proportionately. Two years of driving down the dollar under Treasury Secretary James Baker had done little to increase American exports or decrease American imports. Many Democrats were trying on campaign positions with a protectionist style. The time demanded the question: Why is the U.S. electronics industry ignoring this great new business?
Over the next few years, high-definition television became a practical economic issue and, to some, a symbol of the decline of the United States. It is one focus of the great national debate about industrial policy—the idea that the government should intervene in business to keep the economy strong. HDTV is also a focus of the national debate about competitiveness.
Why all the fuss about a new way of looking at soap operas? Because HDTV is more than just a TV set. HDTV technologies are the most important computer, communications, and electronic-component technologies of the '90s. HDTV systems will include major subsystems of great use in other electronics products. At home, the TV set will contain enough processing power and memory to serve as a stand-alone computer or as a node on a national information network. It will be the gateway for services ranging from videotext to movie rentals to TV telephone systems. The HDTV set can be the terminal for multimedia database systems in which moving pictures, still pictures, voice and sound data, and text data from a variety of sources can all be accessed and processed on one machine.
The tremendous potential of HDTV has invited attention from Congress and federal regulators. Rep. Edward Markey (D–Mass.), chairman of the House Telecommunications and Finance subcommittee, expressed the prevailing government attitude when he held the first congressional hearing on HDTV in 1987. "If we do not get a handle on where we as a nation are going with this technology, by 1990 or 1991 the marketplace will take care of it for us," Markey declared. "But we must recognize that the marketplace decision may not be the best decision for the American broadcast and cable industries, domestic manufacturers, or consumers.…We intend on making the decisions. "
Similarly, the FCC has sought to keep out the Japanese and protect special interests by replacing market decisions with its own judgment. The agency's painfully slow approach to setting standards for the new industry is stifling the emergence of HDTV in the United States. Regulatory drag may help fulfill Markey's dire prophecies about America falling behind in the development and use of this multifaceted technology.
Understanding the FCC'S response to HDTV requires some familiarity with the history of U.S. broadcasting standards and technology. The broadcasting industry set up the National Television Systems Committee in 1940 to establish technical standards for black-and-white television in the United States. For reasons that seemed good to engineers at the time, it established that U.S. television stations would broadcast an amplitude modulation (AM) signal, like the radio signals of the day, on a channel that would be six megahertz wide. (Translation: Broadcasters would send a radio signal vibrating at the rate of 6 million waves per second, and information would be conveyed by the size of the waves.)
As with the movies of the day, the picture would be four units wide by three units high. It would be composed of 525 scanning lines per frame, with 42 lines blanked out for separation, leaving 483 lines of picture information. Each line would contain 440 dots.
In the early 1950s, another National Television Systems Committee agreed to add color to the broadcast signal without increasing the bandwidth or changing existing black-and-white sets in any way. Broadcasters did this by coding additional information on the existing signal in a technique developed by RCA called subcarrier modulation. Drawbacks, which you may have noticed on your own TV, included a loss of brightness on black-and-white sets, an annoying tendency for bright colors to produce ghost images, and interference with the sound. As television became a worldwide medium, the Japanese adopted the NTSC standard whole; the Europeans changed one feature, choosing a 625-line frame and getting a slightly sharper picture.
As we sit and watch our favorite shows, we don't notice the flaws in NTSC television. We have been conditioned since childhood to accept them. Some of us, in fact, feel that programs made on videotape are more "real" than the objectively higher-quality pictures made originally on film. We have learned that live TV "looks like that," and live TV is what's happening. But anyone who has tried to follow a hockey game on TV knows that television pictures do not handle fast-moving images well. The picture is also sensitive to interference, which produces ghosts, flicker, distortions, and false colors. We live with it all, because we don't know any better.
Another flaw is historic. The four-by-three screen is no longer the movie industry standard. Wide-screen movies came in about 1955. So when a movie is adapted for TV, the wide image is either chopped off at the edges or scrunched together like an accordion, or a little of both. To see the wide image, try renting a recent Woody Allen movie on videotape. Allen refuses to allow chopping or scrunching, so his movies come with big black stripes at the top and bottom. The remaining picture has the proportions of the wide screen.
Other flaws are easiest to see on a big-screen set. When the TV picture is enlarged for a 50-inch screen (the kind you find in sports bars), the picture elements—the dots that make up the picture, called "pixels" for short—grow bigger in proportion. To appreciate the big screen, you must sit proportionately farther from it, until its apparent size is back down to the apparent size of a home TV screen when viewed from 6 to 10 feet away. Sitting close to a big-screen NTSC set makes most viewers feel that the image is dissolving into a moving swirl of dots.
HDTV promises to make TV pictures as crisp as the movies. At NHK in Japan, designers began working on HDTV in the early '70s. They concluded that they needed more than 1,000 lines per frame to come acceptably close to the resolution of contemporary 35-mm movie film. They selected 1,125 lines and chose picture dimensions of 5.3 units wide by 3 units high-close to contemporary wide-screen proportions.
The NHK studio system, which was ready by the mid-'80s, requires about 30 megahertz per HDTV channel, the equivalent of five NTSC channels. Using a signal compression system called MUSE (Multiple SubNyquist Sampling Encoding), however, it can be crammed into 8.4 megahertz at some cost in sharpness and realistic portrayal of images in motion. The NHK studio system has been used to make movies, television programs, and commercials in the United States, Canada, Japan, and Western Europe. Sony sells cameras, monitors, and tape machines using the NHK system.
In the United States, at least nine competing versions of broadcast HDTV emerged, and in 1988 the FCC appointed a panel of 34 experts, drawn from the government and the production, cable, broadcasting, and engineering industries, to study and evaluate them—to pick the one standard that the U.S. government would allow broadcasters to adopt.
The advisory committee and the FCC agreed that they would not choose the best HDTV standard. Rather, they would pick the best HDTV standard that could be broadcast compatibly with the NTSC system. This approach is analogous to what was done when color TV was introduced: The HDTV television system that the advisory committee chooses must include an NTSC signal that conventional televisions can receive.
The exercise is going nowhere, slowly. In March 1990, two years after the advisory committee was formed, FCC Chairman Alfred Sikes announced that the agency will boldly push for fast adoption of a technical standard for HDTV broadcasting in the second quarter of 1993. The advisory committee members agreed that would be pretty tough, but they accepted Sikes's admonishment to finish their testing and advising by September 1992. They all congratulated one another on their bravery, determination, and efficiency.
"We don't want to hold up HDTV," Sikes said. "We want to avoid endless legal proceedings in the midst of a dynamic market development." Amazingly, nobody laughed. Holding up HDTV is the purpose of the entire exercise. Sikes and the members of the advisory committee are involved in a government- sponsored conspiracy in restraint of trade. They have combined to assure the exclusion of the NHK system from the American broadcast market.
Why? The FCC is like most regulatory bodies; it has become a defender of the interests it regulates. In this case, the FCC is defending local broadcasters and trying to make sure they can compete on an equal technological footing with cable, tape, and satellite television.
Letting the industry adopt the NHK system right away is a practical solution to every interest except that of the local broadcasters (although that system may later be superseded by more flexible, higher-quality digital systems). Nationwide network programming, such as CBS or HBO, is now carried on communications satellites. The satellites could just as easily deliver HDTV programs to the 85 percent of homes that can receive cable; anybody else could stick a dish on the roof. But local broadcasters would be stuck with second-class pictures, and probably second-class programming. They might even lose their access to cable, if cable operators had to kick something off the system to make room for HDTV.
Joseph Flaherty of CBS put the issue this way: "A terrestrial HDTV broadcast system must be devised to maintain the American system of broadcasting.…Terrestrial broadcasters need to deliver a quality of picture and sound that is competitive with other media delivery systems. Anything less than this basic principle will be detrimental to terrestrial broadcasters and the public we serve.…A failure to provide sufficient radio frequency spectrum for the terrestrial broadcaster could put terrestrial broadcasting in a position of irreversible inferiority."
Analysis of Flaherty's sentiments shows that he carefully equates the public and the American way of life with broadcast interests. That's understandable for a representative of broadcast interests, but members of the public ought to ask whether their happiness depends on the continued profitability of local television stations.
Many local broadcasters paid big bucks for their licenses during the '80s, a period of frenzied trading of broadcast properties. Some of them are big media conglomerates that own newspapers. All of them are politically powerful. The FCC is afraid to tell them to take a hike. Zenith Chairman Gary Pearlman was honest about it: "In my view, there's no way we are not going to protect the terrestrial broadcaster, because he's the guy who gives free news coverage to the politician."
FCC commissioners and staff echo the pap from the National Association of Broadcasters about Americans' "right" to receive free broadcasts and about the local stations' devotion to local news and public service. Consumers should be glad the FCC at least rejected the broadcasters' most outrageous suggestion: NBC President Robert C. Wright urged that FCC rules be extended to ban incompatible HDTV cable and tape systems as well.
In June 1988, Rep. Markey took testimony from the chief executives of the three major networks. Wright, CBS President Laurence A. Tisch, and Thomas S. Murphy, chairman of Capital Cities/ABC, came out foursquare for preserving the current system, describing it as a hometown, mom-and-apple-pie service.
Murphy declared: "Local broadcasting is unique, both in its ability to respond to local issues and local community needs and in its ability to provide the public with diverse national and local entertainment, news and sports."
Said Tisch: "The public should not have to bear the risk that HDTV would not become fully available to the local broadcasters and networks who have made the investment and built our system of free over-the-air broadcasting."
Wright made the best plea: "Broadcasters and the FCC have a responsibility to protect the 140 million sets currently in use, representing a consumer investment of approximately $70 billion [that's $500 per set]. Second, if we are concerned about free over-the-air television and its role in serving the needs of the American public, then broadcasters must be able to respond swiftly to the arrival of advanced television, as rapidly as their competitors in rival media."
Never was a question more strongly begged What if we are not concerned about free over-the-air local television? What if we cannot think of any local program we like? What if we think our local cable companies, with several channels of local news, local government coverage, and local entertainment, are already doing a far better and far more localized job than the broadcasters?
Rep. James Cooper (D–Tenn.) put some of those questions on the table: "I am worried that what we are seeing on this panel are three very large, very powerful dinosaurs who are protecting their feeding grounds. It worries me very much that due to your vested interests and a very narrow channel bandwidth that you are willing and interested to do virtually everything within your considerable power to slow the access of the American consumer to this magnificent new technology."
Wright denied the charge, asserting that networks could easily survive. The network sends its signal to satellites and need not care how it's received or relayed. This response, while true, overlooked a fundamental secret of network economics. In most years, ABC, CBS, and NBC make more profit from their owned-and-operated stations than they do from their networks. Their interests are in large part the same as those of the independent broadcasters.
Wright added that he and his fellow network executives were defending "the portions of the public who do not have access to that hard [cable] wire, who have chosen not to spend the money"—which sounds as if he wanted the congressman to believe he cares about people who can't afford to buy the products advertised on his network. "If the statement is that we are desperately trying to preserve the ability of that noncable customer to receive an adequate and technologically acceptable picture, then we will plead guilty to that."
Cooper, who said many of his constituents in the hills of Tennessee have satellite dishes, translated. The view of the networks, as he put it, is: "Don't let the consumer vote with his pocketbook, because he might put us out of business."
Tisch weighed in with the warning that Cooper was heading down the road to universal pay TV, but Cooper's cross-questioning produced this frank concession: "We're here to preserve free television because we do preserve shareholder value through the medium of free television."
Markey, however, didn't buy Cooper's argument. "This is clearly an issue that cannot just be left to chance, that cannot be left to some invisible hand to resolve. This is clearly a case where the government has to work closely with the leaders of our private industry to achieve the goals which we establish, which I believe at heart include the maintenance of the over-the-air free broadcasting system in this country."
There is a close historical comparison, in radio, to the HDTV issue. The FCC acted more wisely in guiding the transition from AM radio to FM radio. It accepted industry standards for FM broadcast, and later for FM stereo, without much worry over the damage that would be done to owners of AM stations. The commissioners probably didn't expect FM broadcasters to offer such attractive programming in the higher-fidelity format: The whole baby boom generation abandoned Cousin Brucie and Murray the K for the better sound of album rock stations. Would the FCC of the '60s have openly allowed the financial damage that was done to AM station owners?
Certainly, today's FCC would not do so. With its interminable technical evaluation, the FCC has decided to reinvent the wheel, and it's trying to evaluate competing technical proposals—for wheels with wire spokes, wheels with steel spokes, wheels with no spokes, wheels with disc brakes, wheels with drum brakes, wheels with large tires, wheels with soft tires, you name it. The idea is that the longer this process takes, the better the chance that an American wheel will outperform the Japanese wheel.
Advocates of the FCC approach might cite the emergence of digital systems as evidence that the strategy is working: On the last day for filing HDTV proposals at the FCC, New York City–based General Instrument Corp. unveiled a surprise entry: an all-digital system based on the video-scrambling devices G.I. had invented for HBO and other cable TV channels. "If you had digital NTSC, you'd think it was HDTV because the clean digital signal makes so much difference," said Larry Dunham of General Instrument. "For HDTV, you should digitize at the camera and never go back to analog until you reach the picture tube." Digital TV is still several years behind the NHK system in development, but G.I.'s announcement spurred other companies to quickly produce their own versions. Within a few months of the General Instrument announcement, digital television went from pie-in-the-sky to state-of-the-art.
Arguing that the promise of digital systems justifies the FCC's delays is misguided, however. During the standard-setting process, no business, Japanese or American, is likely to take a chance on an HDTV system for cable or tape or satellite that could be made obsolete by an order of the FCC. Thus, while the process goes on, local broadcasters are safe from competition.
It looks like the process will go on for quite some time. The advisory committee is constructing a lab in Alexandria, Virginia, to do exhaustive engineering tests of HDTV systems. It plans to drag a whole lot of people into an auditorium at the lab and play all the types of HDTV at them, asking which one they like the best. The testing, of course, has to be set up so as not to favor one system over the others by some technical accident.
There is precedent for this foot dragging. More than 20 years ago, AT&T's Bell Labs brought a new technology called cellular mobile telephony to the FCC for approval. It took the FCC more than 10 years to decide to test the new technology, four more years to run the test and evaluate it, two more years to decide how to allocate part of the precious radio spectrum, two more years to award the first licenses for big cities, and three more years to award licenses in smaller cities and rural areas. The popularity and the potential market for cellular telephones was never in dispute. The only issue was whether the FCC would let the telephone company dominate the market.
HDTV presents much the same issue, and it's being decided much the same way. Today, instead of being frightened of Ma Bell's monopoly, the FCC is frightened of Japan Inc. and of communications media—cable, direct broadcast satellite, and videocassettes—the commission does not control. Once again, the commission is determined to protect a narrow slice of American business interests at the expense of a great many American consumers.
There is no question that the American public will buy better home entertainment systems as soon as they are available. There is no question that the people who sell them, and the people who produce the programs, and the people who advertise on the new medium will be serving a huge market. The only issue is who those people will be.
The FCC has decided that those people will be today's local broadcasters. Them, or nobody. The FCC is working against the interests of American consumers in favor of those few individuals and corporations that own television stations. Is this regulation in the public interest?
The FCC should boot the whole HDTV issue out onto M Street. Let the proponents settle their differences themselves, if they can. Let them hire a hall and lock themselves in until they agree on one standard. Once a similar process got started in cellular telephone licensing, it didn't take more than a couple of months.
But if they cannot agree, let them invite the top executives of trade associations of broadcasters, cable system operators, videotape renters, TV producers, and so forth to view the systems. If the trade associations cannot agree, let them write the names of the competitors on slips of paper and draw one from a hat. And if that won't do, the U.S. electronics industry will have to let the Japanese have the business.
The thought sends chills down the spines of Ed Markey and other advocates of industrial policy. In 1987, he warned: "Either we put the government and labor and the electronics industry and the universities together today, and we put together a policy and we understand what our strategy is, or we are going to go down the same road that we have gone with automobiles and VCRs and every other consumer product." That road leads to a wide selection of high-quality products at low prices. What's so bad about that?
Thomas G. Donlan is a Washington editor of Barron's. This article is excerpted from his new book Supertech (Business One Irwin).