A Competing TV Provider

It uses broadcast TV infrastructure to compete with TV stations. It's not an ISP, but its business model is unique, fascinating, and strangely familiar.

by Gerry Blackwell [August 27, 2004]

ISPs are not the only players hoping to muscle in on the lucrative pay TV services market, and as start-up U.S. Digital Television Inc. (USDTV) has shown, delivering alternative TV services over IP networks—as inevitable as it may seem to ISPs—is not the only option.

IP is an option USDTV is considering for the future, says Bret Westwood, the company's vice president of Internet services and information technology. But for now, the Utah-based company is concentrating on quite a different business and technology model.

In March, USDTV launched a consumer pay TV service in Albuquerque NM, Salt Lake City, and Las Vegas, offering a package with multiple time-shifted relays of 12 popular cable TV channels for $19.95 a month. Subscribers purchase a USDTV set-top box from Wal-Mart for $99, which also pulls in free local digital broadcasts.

The company is partnering with local TV stations, transmitting on their unused digital broadcast spectrum and using their transmission infrastructure. Its ambitious plan is to expand to 100-plus markets over the next three years.

The stations subscribers get with the USDTV service include Disney, ESPN, Fox News, The Learning Channel (TLC), and Discovery Channel. With time-shifted transmissions and local stations, the receiver brings in close to 40 digital channels, with image and sound quality superior to analog and comparable to digital services from satellite and cable companies. Some offer high definition TV (HDTV) programming as well.

The number of channels is obviously far fewer than with cable and satellite. Will USDTV add more? It might, Westwood says, but that's not really the point.

"It's never going to be 100 channels, but it might be 20 one day," he says, "What we want to do is give you the TV you watch not the TV you don't watch. Our 11 channels are among the most watched in the country according to Nielsen."

Another disincentive to adding channels is that the company's $19.99-a-month price is guaranteed until 2006, so adding new channels before then would only increase costs without increasing per-subscriber revenue.

The service reportedly attracted more than 2,000 subscribers during the company's first month of operation. Westwood says USDTV is bringing in "thousands" of new subscribers each month now.

Todd Chanko, Media Analyst for Jupiter Research, is not surprised USDTV is finding some early success.

He points out that while pay TV has almost completely superseded the free TV model of the past, about 15 percent of the U.S. market still doesn't subscribe to any pay TV service, often because they balk at the high cost.

"What [USDTV] is hoping is that by offering a pared down service—it's roughly half the cost of the average cable monthly bill—it will attract that 15 percent or at least incent them to explore the possibility of pay TV," Chanko says.

Another market segment of unknown size is very dissatisfied with escalating prices of cable TV offerings—and with being forced to subscribe to channels they don't want or watch.

"There's a real level of anger in the market about that," Chanko says. "So USDTV's hope is that it will also be able to tap into some of that dissatisfaction."

 

1. A Competing TV Provider

>2. Everybody Wins

3. The IP Future