The Digital TV Transition: What Every Marketer Should Know
By Jeffrey D. Knowles, Frederick M. Joyce and Ronald E. Quirk
After many fits and starts, the United States is finally poised to replace its analog television technology with the technologically superior digital television (DTV) format. The U.S. Congress has mandated that, beginning on February 17, 2009, all full-power television stations must cease their analog transmissions and transmit only digital signals. This rapidly approaching deadline will, among other things, result in more channel capacity for broadcasters, as well as open a huge swath of prime spectrum for other services. The DTV transition presents ample opportunities for equipment manufacturers worldwide to design and sell new products, and more channels for retailers to market their products.
DTV TRANSITION OPPORTUNITIES
Analog television currently operates on channels 2-69 (58 MHz-806 MHz). DTV, which makes much more efficient use of the broadcast spectrum, will enable all TV stations to broadcast on channels 2-51 (58 MHz-698 MHz), freeing 108 MHz of spectrum for use by other services. Starting no later than January 28, 2008, the FCC will auction 60 MHz of the commercial 700 MHz spectrum. The Congressional Budget Office estimates the action will generate nearly $13 billion. The FCC will permit 700 MHz licensees a great deal of flexibility to use their spectrum to provide many different services, including: fixed and mobile digital broadcast operations, high-speed Internet access, two-way interactive services and wireless private, internal radio networks.
With their expanded channel capacity, broadcasters will be able to offer new services through DTV--such as multicasting several programs simultaneously--and datacasting, which will enable viewers to interact with multimedia content from their television sets. The increased channel capacity presents retailers with a unique opportunity to work with 700 MHz licensees to provide services such as interactive shopping, interactive and addressable advertising, gaming and a variety of consumer care applications. The new services likely to be spawned by the DTV transition will also undoubtedly create a strong market for new communications equipment, including advanced set-top boxes (STBs), which will be needed to abstract multimedia content and display it on television screens.
DTV LEGAL ISSUES
While the DTV transition will almost certainly provide plentiful opportunities for STB and other equipment designers, manufacturers and importers, it is vitally important that they comply with pertinent FCC rules. Section 303(s) of the Federal Communications Act states that the FCC has the authority to require that all U.S. television receivers are capable of receiving all allocated frequencies. To that end, in 2002, the FCC amended Part 15 of its rules by implementing the "DTV tuner requirement." This rule requires that all television receivers (as well as other television interface devices such as VCRs and DVD players) imported into the U.S. or shipped in interstate commerce, be capable of receiving DTV signals over the air (i.e., contain DTV tuners). The FCC implemented a phase-in schedule beginning in 2004 that applied the DTV tuner requirement first to receivers with the largest screens, and then to progressively smaller screen receivers and finally to other television receiving devices that do not include a viewer screen.
Several recent FCC actions demonstrate that failure to comply with the DTV rules can lead to severe penalties. In January 2007, after reviewing some U.S. Customs importation data, the FCC launched an investigation of a company that was apparently importing and shipping interstate television receivers without DTV tuners after the applicable deadlines had passed. The investigation revealed that this importer had imported and shipped interstate more than 22,000 non-DTV-compliant television receivers. In May 30, 2007, the FCC imposed a nearly $3 million fine against another importer of television sets that did not comply with the rules.
In addition to new technical standards for television equipment, the FCC implemented a rule earlier this year that requires any person who displays, sells or rents analog-only television receiving equipment to display a "consumer alert" stating, among other things, that the device is analog-only and will require a converter box to receive over-the-air broadcasts after February 17, 2009 due to the DTV transition. The FCC recently issued a citation to a company that failed to include the consumer alert on its Internet website that displayed analog television receivers for sale. The FCC has also issued directives to retail outlets, instructing them not to sell certain types of non-compliant (non-DTV) communications devices, or face financial penalties.
DTV AND PRIVACY ISSUES
DTV will give marketers a new platform to reach and interact with consumers. Just as the emergence of the Internet and other new content delivery technologies have given rise to concerns about consumer privacy--and driven the creation of laws to address those concerns--the interactive capabilities of DTV and the direct consumer communication it will enable will likely fuel reconsideration of consumer privacy issues. This could cause privacy laws to evolve, too, especially during the first few years after the DTV changeover. Companies marketing via DTV will need to stay abreast of changes in the privacy environment in order to maximize their ability to communicate with their customers without running afoul of new laws or generally accepted practices.
EMBRACING DTV
Like any shift in technology, the switch to DTV will present challenges to companies designing and manufacturing consumer electronics, importing and selling televisions and accessories, or using DTV's expanded capabilities to market to consumers. However, these challenges will pale in comparison to the opportunities DTV will create for direct marketers. The need to retrofit older television sets will generate demand for new products such as set-top boxes. The ability to transmit interactive content will present marketers with a novel platform from which to market all manner of consumer products.
Due to its Congressional mandate, the FCC is doing everything it can to ensure that the DTV transition proceeds smoothly and rapidly. This interest in a smooth transition will aid marketers by ensuring rapid adoption by consumers, and allowing marketers to take advantage of the benefits of DTV technology sooner. At the same time, the FCC is vigorously enforcing its DTV rules and will not hesitate to investigate and sanction non-compliance. It is critical that all manufacturers, importers and marketers of DTV and other communications equipment know and comply with existing and future rules to make sure that their marketing practices do not run afoul of government regulations and that their products can be sold in the U.S. without financial forfeitures or other unnecessary regulatory problems.
Jeffrey D. Knowles is a partner at Venable LLP and chair of the firm's advertising, marketing and new media group. He can be reached at (202) 344-4860 or at jdknowles@venable.com. Frederick M. Joyce is a partner at Venable LLP and chair of the firm's communications group. He can be reached at (202) 344-4653 or rjoyce@venable.com. Ronald E. Quirk Jr. is an attorney at the firm and focuses his practice on telecommunications regulation and policy. He can be reached at (202) 344-4677 or at requirk@venable.com.
