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Digital TV Mandate Is Proving Costly for American Consumers, Business – Pacific Research Institute

Digital TV Mandate Is Proving Costly for American Consumers, Business

The Congressionally mandated switchover to digital TV is proving costly to both consumers and the industry, analysts say.

The taxpayer-funded program to provide subsidies to TV owners for the switchover, the Digital-to-Analog Converter Box Program, allots every U.S. household two coupons towards the purchase of the boxes, which are required for any analog television that will be used to receive signals after the nationwide cessation of analog broadcasts on February 17, 2009. In the end, consumers will pay both directly and through their federal taxes.

All full-power television stations now broadcast both analog and digital signals, but starting early next year, over-the-air broadcasts will be in digital only.

The change is not a response to market pressures but was mandated by Congress, in the Digital Television Transition and Public Safety Act of 2005, to free up the spectrum currently used for analog broadcasts.

Cascading Laws

People who still watch television through an analog signal will have to make sure their television has a digital tuner. If it does not, they will need a converter box to turn the digital signal into an analog one and feed it into the television.

The Digital-to-Analog Converter Box Program was implemented to provide converter boxes and alleviate the burden on consumers resulting from the mandate.

“Through the government’s program, everyone will get help to pay for converter boxes,” said Shermaze Ingram, senior director of media relations for the National Broadcasters Association’s digital TV team.

“This is especially important for people in low-income households,” Ingram said. “Consumers will receive up to two $40 coupons per household, and the converter boxes range in price from $40 to $75. So in some cases people will pay little to nothing for the boxes.

“Wal-Mart, for example, is selling the Magnavox converter for $49.99, and in some markets, like Texas, retailers are selling them for $39, so people who purchase one of those boxes won’t have to pay anything out of pocket,” Ingram continued.

Broadcasters Get Free Ride

Some industry watchers say consumers should not be financially responsible for the change at all, especially given who gains from the switch to digital.

“In an ideal world, consumers wouldn’t have to incur any expense,” said Daniel Ballon, a policy fellow in technology at the Pacific Research Institute, a San Francisco-based organization. “It’s really the broadcasters who are benefiting from this transition. The FCC is giving them more spectrum for free, which doesn’t happen any more.

“Nowadays they sell spectrum by auction so the taxpayers get something back for it,” Ballon continued. “But the broadcasters were able to grandfather-in the old rule that gave them spectrum for free if they followed certain stipulations, because they have very savvy lobbyists. Personally, I would have liked to see the switch to digital go to an auction with that money going to pay for the change on the consumer side. In the absence of that, broadcasters should chip in some money to help subsidize those customers who can’t afford a converter.”

Costly to Broadcasters, Too

Broadcasters argue the transition has been costly to them, and they point out they didn’t prompt the change.

“This is not a decision made by the broadcast industry,” Ingram explained. “This was federally mandated by Congress, which is why they allocated $1.5 billion to the coupon program. The conversion to digital is costing broadcasters billions of dollars. Even the smallest television stations will have to pay a minimum of $3 million to $5 million to have the capability to send out the signal–and that does not include the fancy stuff like having an HDTV signal for your local news, for example.”

For cable, subscribers who do not already receive a digital signal from their provider may be stuck paying an equipment installation fee and monthly rental fee for a box feeding the provider’s all-digital signal to the television as an analog one.

Critics say the additional cost is unfair to consumers, but cable companies say compliance with the government’s all-digital mandate is costing them too.

“Cable operators are working through the process to ensure that they have the right equipment to make the conversion,” said Brian Dietz, spokesman for the National Cable and Telecommunications Association.

“There has been the cost of equipment to take the new digital signal and convert it to an analog signal and vice versa,” Dietz said. “In addition, there have been some costs in consumer education that the cable industry voluntarily paid for.”

Much Ado About Nothing?

Although the switch to digital is getting much attention–and causing much confusion–among many television owners, some technology experts think the tizzy surrounding the change may be a case of déjà vu.

“In the end, I’m not sure how many people are really going to be affected by this,” said Ballon. “The industry has been preparing for this for a very long time, and electronics manufacturers have been making televisions with the capability to pick up digital signals for some time. I would bet that a really high percentage of consumers don’t have to worry about making any adjustments for the conversion.

“This could be another Y2K situation where everyone gets very excited about a change, and it turns out to be much ado about nothing,” Ballon concluded.

Aricka Flowers (atflowers@hotmail.com) writes from Chicago.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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