Indies struggle to find a place in TV distrib market

B'casters try to launch low cost service

NEW YORK — Jeff Smulyan tells anyone who will listen that he has a plan to take the TV distribution business back from cable and satellite.

Smulyan, CEO of Indianapolis-based Emmis Communications, decries the “middlemen” — cable, satellite, and soon the Bells — that “take our product and profit from it.”

Here’s his plan: Broadcasters were granted reams of digital spectrum back in 1996 by the U.S. government to convert to digital broadcasts. It’s enough spectrum for a company like Emmis to provide a low-cost, terrestrial pay TV service that would have local channels plus about 25 of the top cable channels.

Best of all, the service would cost about $25 a month, about half the cost of most cable bills.

But after months of talks with local broadcasters and the networks, the plan remains in limbo, a new competitor has launched a similar service, and it’s starting to look like the Baby Bells are going to get into the pay TV business before local broadcasters get their act together.

More than 80% of the American public receive their local broadcasts by subscribing to cable or satellite. And each year the cable guy raises rates and takes a bigger bite of local advertising — the lifeblood of local broadcasters.

But Emmis commissioned a study that found a low-cost pay TV service would have strong national appeal. In a survey of 1,000 households, the Monitor Group found 29% of those subscribing to cable and 26% of satellite customers would consider a switch.

Even more encouraging, 20% of those who subscribe to neither cable nor satellite said they were “likely” to give such a service a try.

“There’s a huge hole in the market,” Smulyan told a recent investor conference in Gotham. “I haven’t had one person who has studied this and not fallen in love with it.”

The trouble is, getting fiercely independent broadcasters to work together is something akin to herding cats. Broadcasters such as Citadel Communications, E.W. Scripps and Media General signed on to Smulyan’s plan last spring, but talks have stalled with the networks, which are owned by conglomerates that also own cable channels.

The first digital TV service to test such a business model has already launched on a small scale. Salt Lake City-based startup U.S. Digital Television has partnered with local broadcasters around the country to launch it’s own terrestrial pay TV service and recently signed its 10,000th customer.

USDTV sells a digital antenna at Wal-Mart for $99 and then offers a $20 subscription for local channels and 12 top cable channels, including Discovery, ESPN and Lifetime.

USDTV, which operates in Salt Lake, Albuquerque and Las Vegas, signed seven-year agreements with cable channels and leases spectrum from broadcasters. USDTV shares revenue with broadcasters and pays retransmission fees.

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