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Professor Gives High Definition to Digital Debate

Henry Laurence

Story posted October 27, 2005

Go into any electronics department these days and face a wall of high-definition televisions all broadcasting lush, surreally clear images. Most salespeople advise consumers to purchase one or perish. The digital revolution is at hand - most industrialized nations are committed to replacing analog with digital television (DTV) within the decade, with high-definition television being the ultimate reward.

To pundits, the plusses of DTV are obvious: Digital uses only a fraction of the spectrum space of analog, offers supremely improved picture and sound quality, and - consumer beware - allows viewers to "interact" with the broadcaster, sending back information such as votes or purchase orders.

Digital televisions
American retailers are promoting high-definition television, although fewer than half of U.S. households are yet fully digitized.

For a political scientist such as Bowdoin Associate Professor of Government and Asian Studies Henry Laurence, however, the advent of DTV offers a highly detailed screening of something else - the wheeling and dealing taking place among broadcasters, electronics manufacturers, and politicians in virtually all free-market economies as they wrestle with what he says is a "collective action problem" in making the switchover to digital.

In spite of the hype and the hope, DTV is getting a rocky start worldwide. And it's politics, not technology, says Laurence, that is creating the static.

"The problem all nations face is that while conversion [to digital] is unquestionably in the long-term national interest," says Laurence, "neither viewers, broadcasters, nor electronics manufacturers want to pay the short-term costs."

"You might say it's really about infrastructure, in the same way as rails, or roads; it's public works."

The Catch-22 goes like this: In order to reasonably expect consumers to shell out anywhere from $2,000 to $10,000 for a television capable of receiving high-definition digital signals, there need to be incentives to make it worth their while. That means broadcasters have to start broadcasting either more channels, or different content, or much higher quality graphic material, or interactive content. Broadcasters, however, don't want to invest in expensive transmission equipment and digital programming until there's a DTV audience.

"So everyone sits around on their couches or in their boardrooms waiting for something to happen," says Laurence. "This is a classic collective-action problem."

Laurence and research assistant Katharine Fendler '05 took a pulse on this techo-political issue during 2004-2005, conducting a comparative study of digitalization policy and strategy in Britain, the U.S., and Japan. He expects to publish some of that research in an upcoming issue of the Journal of Comparative Politics, where it is currently under review.

As of 2004, one market study showed significant differences in penetration of households with digital TV among the nations in Laurence's study. The United Kingdom, with over 60 percent of households reporting DTV, leads the way. In 2003, the U.S. measured just 41 percent of households, followed by Japan's 17 percent penetration.

Why are there such differences among free-market nations? Why is the United Kingdom so far ahead? It all depends on who you think bears responsibility, says Laurence:

National Strategies for Digital TV Transition
  USA UK Japan
Deadline to end Analog
2006 2010 2011
Minimum DTV penetration rate 85% 95% No Minimum
Allocation priority for new spectrum Incumbent broadcasters New entrants/ competitive bidding Incumbents
Subsidies to commercial broadcasters? Double spectrum allocation None Direct subsidies for new transmission equipment
Role of Public Broadcaster Weak (PBS) Strong (BBC) Strong
Production quotas for electronics manufacturers Yes (2007) No No
Source: Henry Laurence

"You might think this is all about technology," says Laurence, "that what consumers want is ultimately what will drive this. Or you might say it has to do with the role of government -- whether it believes it is its job to be there in the first place. You might also say this is a coordination problem that requires manufacturers, broadcasters, and consumer groups to sit together and figure out how to bring this about. Or you might say it's really about infrastructure, in the same way as rails, or roads; it's public works."

All of the above is true, says Laurence, but the outcome is shaped entirely differently by the way each nation conducts political relationships between state and private entities.

"The liberal market economy of America, and to a lesser extent Britain, is based on the idea that the role of the state is very small and the free market is meant to do as much as it can," says Laurence." Then there are corporatist models, such as Germany or Japan, where the government takes a greater role in guiding the use of resources and coordinating between difference sectors of the economy. "

One might think that Japan's centralized government would lend itself well to a coordination effort this vast, and it almost did. In 1991, the Japanese government invested billions to pull together its electronic manufacturers, commercial broadcasters, and its public broadcaster, NHK, to cooperatively develop analog high-definition TV, a technology the Japanese had invented.

Six months later, the U.S. invented a digital version, rendering their technology obsolete.

The Japanese government bailed out the private investors by agreeing to shoulder the costs of upgrading broadcast equipment to DTV, and enacted a law requiring analog switch-off to digital in 2011. The cost of high-end DTV equipment has been passed on to consumers, however, who must purchase high-definition televisions that currently cost as much as $10,000 per set.

"Having gone expensively down one dead-end, they then again decided to launch themselves in what looks like another expensive dead-end," notes Laurence. "Because most Japanese people don't want to drop $10,000 simply for the sake of the glorious picture quality. There's an accident waiting to happen as 2011 gets closer."

The American experience involves a fragmented federal approach in the face of powerful opposition from special-interest forces.

Henry Laurence
"The bottom line is, having a new technology doesn't necessarily mean that it will be used optimally in the national interest."

The issue of digital television was lumped into an early 1990s debate between Congress and the National Association of Broadcasters (NAB) over spectrum space, which is controlled by the FCC. The broadcasters argued that the Japanese were developing high-definition television at such a fast pace that we needed to keep up - or be left behind. The broadcasters agreed to develop digital broadcasts in exchange for roughly twice as much spectrum space, as well as the rights to any new spectrum space - ostensibly to allow them to broadcast digital and analog simultaneously, until American television became fully digitized by the target date of 2006.

"Having made this bargain," notes Laurence, "the NAB immediately forgot to do anything about digital at all. People began to get critical and there was a tremendous battle in Congress and the courts. But it is still up to the broadcasters to dictate the pace of digital transition because neither the FCC nor the Congress has an effective way of enforcing the bargain.

"This is where a powerful special interest group can co-opt an issue - even though some members of Congress were trying to do something in the national interest. It is unclear what will happen, because fewer than 50 percent of households currently are digital-capable and the Telecommunications Act stipulates that broadcasters would only have to switch if 85 percent of households were digital capable."

The British solution has been something of a hybrid approach, based on what Laurence describes as "the Goldilocks theory of capitalism, where there is not too much of one thing, and not too much of the other."

"This is where a powerful special interest group can co-opt an issue."

The UK entered the race late, in 1995, and opted to open the spectrum for competitive bidding. A private consortium won the rights to broadcast digitally but failed to attract enough subscribers to cover their costs. The company went bust amid huge political recriminations, says Laurence.

Eventually, the government wrangled a public-private partnership between the British Broadcasting Corporation (BBC) and media mogul Rupert Murdoch to develop a joint "free-to-air" digital venture, with the BBC and Murdoch's News International providing programs, funded in part by the BBC's annual license fee of about $200 per household.

Consumers who couldn't yet purchase digital televisions could purchase set-top boxes (at about $100) that would convert a digital signal to analog, thus preserving the "public interest."

"The results have been highly successful because the BBC has this fantastic brand name," notes Laurence, adding, "and they haven't had to weigh the short-term costs because they are publicly funded.

"Ironically, the British system required government intervention in order to guarantee free-market competition. It was that intervention that allowed for the competition that is allowing for a faster uptake of DTV in Britain."

What is to be learned from these parallel, yet uneven, courses?

"There are many lessons," says Laurence, "but the bottom line is, having a new technology doesn't necessarily mean that it will be used optimally in the national interest. Spectrum space is a national public resource. As such, it requires active, but market-conforming, government intervention in order to secure the public interest. You can't have that when the government allows public resources to be appropriated entirely for private profit."

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