Tech Tussles: Who pays for 3D TV?

Nets disagree on strategy, funding for stereo rollout

If it catches on, 3D TV could alter the entertainment landscape, spurring change in some areas and bolstering the status quo in others.

For example, widespread stereoscopic television would prod even more movies to go 3D, if only because the film biz feels compelled to make sure the movie-going experience never falls behind the home theater experience. And if TV viewers end up loving 3D at home, can wider adoption of Blu-ray be far behind — as well as strengthened cable and IPTV services? Plus, there could be a downside for terrestrial broadcasting, which is not a practical way of delivering stereoscopic images. And 3D could also forestall cord-cutting by consumers, since high-quality 3D streaming gobbles up too much bandwidth for over-the-top .

But switching to 3D production isn’t cheap. Some networks are balking at picking up the tab. But if the nets won’t pay, who will? And why are some networks ready to pony up while others are digging in their heels?

Broken Models

Fox Sports head David Hill has sounded the alarm early and often about the cost of another tech transition hard on the heels of the transition to HDTV. He told the IBC confab last year that although his net paid about $18 million to upgrade each of its studios to HD, it didn’t earn an additional dime for its trouble. Cable and satellite companies didn’t pitch in, and HD ads turned out not to command a premium from advertisers.

CBS Sports executive VP of operations Ken Aagaard echoed Hill in remarks last month, saying “As we go into 3D, there really is no way that my boss or our company is going to allow us to get into the technology unless it is paid for.”

While the networks didn’t turn a profit off HDTV, they certainly noticed who did. Consumer electronics companies sold millions of flatscreens so people could watch all that HD content the nets produced. In a nutshell, the networks paid for a pricey upgrade and watched the set makers walk away with the lion’s share of the profits. So with 3D, they’re figuratively repeating the old saying “Fool me once …”

None of the established TV business models can be supported by a viewership as small as 3D TV has today. There aren’t enough eyeballs watching 3D for strictly ad-supported telecasts, like those of the terrestrial networks, or for carriage fees from cablers and satellite operators to pay the bills.

Nor can 3D events serve a loss leader to drive subscriptions for a premium network, as prestigious programs do for HBO. Viewers can’t yet turn off the 3D on a program to watch it in 2D, so a show simply renders a channel unwatchable for most viewers. Therefore, except for old-fashioned, colored-glasses anaglyph programming, 3D is shown only on dedicated channels.

One back-to-the-future solution for funding 3D telecasts has been to enlist a sponsor for the entire broadcast. In a move echoing the early days of TV, when Dumont sold sets and had a network, the consumer electronics companies are heeding the networks’ call and stepping up with coin of their own.

Sony, for example, sponsored the 3D World Cup telecasts and CBS’ online 3D coverage of the Masters Golf Tournament. LG sponsored CBS’ 3D coverage of the NCAA men’s basketball Final Four.

Pete Lude, senior VP of Sony Solutions Engineering, predicts consumer electronics companies and other stakeholders will continue to defray some of the costs. “It’s a chicken-and-egg issue,” said Lude. “You need a bit of a push (until) there’s some reasonable penetration of 3D TVs.”

Broadcast Blues

Not coincidentally, the complaints about the cost of 3D have come from terrestrial broadcasters, Fox and CBS. Broadcasters find 3D especially problematic. Some network execs insist even an entire digital television channel lacks the bandwidth for a high-quality 3D telecast. Moreover, few full DTV channels are actually available, since some affiliates are carving up their spectrum into subchannels and using it to provide other services. Unless a full DTV channel is available, bandwidth-intensive over-air 3D broadcasts are out of the question, regardless of who steps up to sponsor a show.

So it’s cablers, who have more flexibility with bandwidth, that have pushed ahead most aggressively with 3D. “CBS has Channel 2 in Chicago to worry about. We don’t have that,” said Bryan Burns, ESPN’s VP of strategic business planning and development at a presentation last week. ESPN has launched a dedicated 3D channel with a limited but growing schedule. Sony, in addition to its sponsorship effort, has partnered with Imax and Discovery on an all-3D cable network that launches in 2011.

“We are right where we thought we were going to be” with ESPN 3D, Burns told reporters. Asked about public remarks by ESPN’s senior director of technology, Jonathan Pannaman, that suggested ESPN 3D would shut down after its first year due to lack of viewers and revenue, Burns added: “We’re way ahead of tracking for HD. We’re thrilled.” However Burns deflected questions about when ESPN will be able to monetize 3D.

ESPN 3D benefits from being part of the Disney corporate family. The Mouse House has made a broad commitment to 3D dating back to 2005’s “Chicken Little,” and is willing to lose money in the short term in search of future returns.

For companies with a weaker stomach, another strategy is to put 3D programming on video-on-demand or premium cable channels, essentially shifting a big part of the cost to viewers. “The only way (3D TV) survives long-term is through subscription,” CBS’ Aagaard told Variety earlier this year.

Hidden Costs

While the search continues for new business models, efforts continue to cut costs of 3D production.

Tom Cosgrove, president of the Sony/Imax/Discovery joint venture, said that in the four months he has helmed the new channel, he has already seen costs for 3D infrastructure drop significantly, although he declined to provide exact figures. Sony’s Lude concurred. “A year ago, you would have had to have paid maybe $2 million or more to upgrade from HD to 3D coverage, and now they’re able to do the same thing for less incremental money. That trend will continue, just as it did with high-def.”

Not all the transition costs for 3D are for hardware, though. Anthony Bailey, VP of emerging technology at ESPN, said re-training staff turned out to be a significant hidden cost. “With 2D you go from one perspective to another without thinking about it, but you have to think about that with 3D because it could disorient a viewer,” Bailey said.

Also, Bailey said,ESPN’s 3D transition has differed from the HD switch in a critical way: The early HD telecasts, and the trucks in which they originated, had to support standard-def and hi-def at the same time, adding complexity to the broadcast. ESPN 3D gamecasts are entirely separate, with different cameras and a separate truck.

Going forward, one priority for cost-cutting is to get the 2D and 3D feeds out of a single truck, though the two broadcasts will continue to need separate directors. Sony and ESPN are working together to build a shared 2D/3D infrastructure.

Bailey said that his network is sharing as much 3D knowledge as it can. “We compete against each other on the content, not on the technology side. We have to work with each other to try to make it cost-effective,” Bailey said.

Distributors like DirecTV and Verizon FiOS are getting into 3D as well, becoming quasi-nets as well. DirecTV has partnered with Panasonic to deliver a 24/7 3D channel, n3D, that can be accessed by any DirecTV customer with a 3D-capable TV.

The distributors seem less focused on the current cost of 3D broadcasting than on the risk of getting left behind.

“Distributors like us and content producers are trying to figure out the right level of investment, but if 3D becomes as widespread a thing as HD, you have to believe everyone is going to need it to stay competitive,” said DirecTV exec VP Derek Chang, whose company already has invested heavily in upgrading its infrastructure to handle 3D.

“The cost is lower to build out
rather than having to redo it later, but resource allocation is a decision every business has to make,” Chang said. “But all parties involved have to be careful (to do it) well. One of my worries is that some people will take a half-assed approach to it and turn off customers, which would be bad for everyone.”

Unique Offering

Verizon, meanwhile, has offered 3D broadcasts of NFL games in limited areas, and plans to offer 3D movies through its VOD service. Terry Denson, VP of content strategy at Verizon FiOS TV, sees 3D as a means to poach customers from more established cable and satellite providers.

According to Denson, only Verizon FiOS offers full-resolution HD 3D, a feature that retailers like Best Buy can use to help sell 3D TVs. “It reinforces the value of the set they just bought and the distributor that they’ve chosen,” Denson explained.

Denson also pointed out that at this point, it is difficult to roll out a business model that requires a significant investment in content because the addressable market is so small. “You’re not going to get it back in licensing, advertising or sponsorship because reach is too slim,” Denson said.

“Customers are going to aspire to have these sets in the midterm, which is why we’re investing in our infrastructure, and we’re looking for creative business models to make sure attractive content is available to help grow the market,” Denson added. “But what did Comcast get out of showing the Masters? Very few people recall they did it, and even fewer watched it.”