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State of the Transition

October 7, 2007

This past week has been slow on news, and since we just passed the 500-day mark (until the formal end of the transition), it's a good time to stand back and see where we are.

I also added a new section in my menu bar--"What's Analog?"--because of the widespread misconception within the general population that an "analog" TV is a CRT direct-view television and a "digital" TV is a flat-panel. Hopefully I haven't muddied the water further with my explanation.

Twas the night before Christmas and all though the house . . . Well, not quite. With 500 days left until the end of the transition, the vibes I'm getting are perhaps anticipation, but more of the trepidation sort.

The transition is looking to be messy, because right now nobody is in control. If there had been a plan, the remainder of the transition would have been more predictable. But as it is, we have anarchy.

Members of Congress are getting nervous and irritated, being political animals with an election coming a few months before the end of the transition. After failing to pass effective consumer education legislation, and being assured by industry lobbyists that everthing was under control, they're starting to hear bad things about the transition. Unfortunately, it's unlikely they can do anything about it except hold more hearings and use their bully pulpit to encourage action.

On October 17th there will be two Congressional hearings on the transition. Government witnesses will testify before the relevant House committee in the morning and then hike over to the other side of the Hill to testify before the Senate Commerce Committee in the afternoon. The House is having a separate transition hearing on the 31st for industry witnesses.

Since the NTIA has bungled the converter box program, and have become nothing more than a cheering squad for the industry, Congress is now looking to the FCC to pull the transition back from the brink.

Unfortunately, Congress didn't give them any money to do that, and the Commission's consumer people are just now jumping in, and still very low on the learning curve.

On October 15 the TV industry's DTV Transition Coalition is going to announce their big education plan, after keeping it under wraps for months from the FCC and Congress. Note that they're waiting two weeks after the comment cycle ended on the FCC's own Consumer Education Initiative proposals. That will have the effect of delaying that rulemaking action while Commission policymakers wait to see what voluntary education measures the industry says it will take.

FCC Chairman Kevin Martin has promised quick action on the education rules--that could be good or bad or just talk.

The TV industry is showing signs of desperation in their opposition to any mandated government consumer education program. They want to stay very much in control of the market--that is, in control of what consumers hear about the transition and when.

TV manufacturers would like steady and predictable demand for their products. At least one manufacturer has worried about a late spike in demand for converter boxes; it takes them four or five months of lead time to put boxes on store shelves. TV builders want to keep their production facilities fully employed over the long haul. They can't afford to double production capacity for a six month spike, even if they could predict it. So they're worried about how consumers might react to a government-mandated education campaign.

Like manufacturers, retailers like to say they only respond to "market forces" driven by consumer demand, but their marketing people like to shape and control that demand. Trade news says they want to drive consumers to expanding their purchases to include whole systems, not just low-margin flat-panel TVs, but also cables, audio systems, and installation. They'd rather have fewer cutomers at higher margins than many more customers all wanting out-of-stock TVs, or worse, cheap converter boxes. People buying a converter box for their old analog TV aren't going to buy a multi-channel sound system or a $100 HDMI cable to go with a big new HDTV.

The cable TV industry has launched a $200 million advertising campaign to keep their customers locked into cable service. The last thing they want is people to figure out they can get perfect high-definition broadcast programming for free with an antenna, but only analog standard-definition fare on their basic cable tier.

And the wild card-- We still haven't heard from the Commission on their 3rd Periodic Review of the DTV transition rules for broadcasters. The comment cycle ended more than a month ago. What the FCC decides will tell us how much flexibility the broadcast industry will get in switching over to their final digital channels. That will tell us how soon broadcasters will start reducing or shutting down their analog signals. It's clear that some people will lose some analog service well in advance of the nominal end of the transition--just how soon we don't know.

So for now the transition is in gridlock--the players are all waiting to see how things will shake out before getting consumers involved--a potentially serious complication if consumers start asking embarrassing questions.

This month holds the potential for some movement one way or the other, but if we just get more of the same, it looks like we'll have to wait until April at least before consumers are told enough to become engaged. The longer we wait, the greater the turmoil as we approach the end.

I'm not hopeful.

Until next week ....