Remarks of

Commissioner Susan Ness

before the

A.G. Edwards Media & Entertainment Conference

Las vegas, nevada

April 11, 2000

Here we are in Venice. Or was it Paris? Or maybe New York, New York?
Where we are is not always where it seems.

We all remember the scene from The Wizard of Oz, when Dorothy sets foot
in Oz, and the picture goes from black and white to color. "Toto,"
Dorothy says, "I don't think we're in Kansas anymore."

That line could have been the theme of this year's NAB convention.

A huge tornado has just blown through town. It's called the Internet.

The picture has just gone from black and white to color ... to digital.
We're definitely not in Kansas anymore.

Of course, NAB's "The Convergence Marketplace" sounds much more
respectable. But the message is the same. The Internet is radically
changing the media landscape and transforming the communications
industries.

This incredible change is driven far more by business models and
technology than by government.

Broadcasters are in the midst of the maelstrom. They have tremendous
assets: a fat \-- albeit one way \-- 19.3 mbps pipe, into every
household in America. They also have dynamite programming. And great
name recognition. The possibilities for broadcasters are enormous. But
so are the risks.

Everyone is going digital: cable television, direct broadcast satellite,
MMDS, wireless phone and even wired telephone companies. The Internet,
of course, is digital. Broadcasters, too, must go digital or risk losing
their birthright.

That was our intent in establishing the transition to digital television
and, soon, digital radio. Broadcasters wanted the ability to go digital,
too, and participate in the greatest communications revolution ever.

Through the actions of Congress and the FCC, broadcasters have been
afforded opportunities that are only possible through digital
technology.

# [Digital Trends]{.underline}

I want to focus this morning on a few trends that epitomize the digital
winds of change:

First, broadcasters are taking advantage of an extraordinarily flexible
standard and digital broadcast service rules to develop innovative uses
for their digital spectrum.

The result could be broadband data applications that marry attributes of
traditional video and the World Wide Web.

Second, the interactive, two-way culture of the Internet is changing the
way broadcasters serve their content to the end-user.

Finally, the network-affiliate relationship has been picked up off its
foundations, and is in full flight. Where it will land remains to be
seen, but it is safe to say that this changing relationship will help
redefine the role of broadcasting in the digital revolution.

# [New Uses of Spectrum]{.underline}

It was anticipated that broadcasters would take advantage of digital to
develop new revenue streams and business models. Congress in the
Telecommunications Act of 1996 allowed for "ancillary and supplementary"
services.

The Commission that same year described digital television as enabling
broadcasters to "send video, voice and data simultaneously and to
provide a range of services dynamically, switching easily and quickly
from one type of service to another."

This year, broadcasters are evaluating new concepts for using and
integrating Internet and other data into their digital bit streams. This
has been a relatively recent event. While it is unclear what kinds of
services will evolve from this convergence of traditional broadcasting
and Internet information, a number of broadcast consortia and private
start-ups are working overtime to find the "killer applications."

Last month, a dozen major broadcasters, including Tribune, Gannett, Cox,
and the New York Times Company, announced the formation of "iBlast,"
which will use a portion of each member station's digital spectrum to
deliver high speed data downloads to 102 markets. Also last month,
Granite Broadcasting formed a 256 station consortia called the
Broadcaster's Digital Cooperative. The cooperative plans to lease
members' spectrum to bidders, who then would use the spectrum for a
variety of high-speed data applications.

BIA Data Management is another spectrum aggregator.

Some companies are planning to go beyond the aggregation and resale of
excess digital capacity. Geocast Network Systems, Inc., for example,
plans to provide a new rich-media program service to the PC desktop
using partner stations' content and digital spectrum. Similar companies
include Dotcast and Wavexpress.

On the radio side, broadcasters are evaluating digital systems as an
adjunct to, and eventual replacement of, today's analog AM and FM
systems. In November, the Commission opened a proceeding to develop a
new digital audio broadcast system.

Of course, the market will decide whether these or other business models
will work. But it is encouraging to see broadcasters exploring these
digital options. Remaining an analog service in a digital world would be
putting the broadcast cash cow out to pasture.

# [New Content Models]{.underline}

The second trend I mentioned is the way the Internet culture is changing
how broadcasters serve their content to the public. This goes beyond a
TV or radio station putting up a Web page.

The Internet has introduced interactivity and personalization to the
media experience. While broadcasting traditionally has been a one-way,
mass medium, we are witnessing a change in the way broadcasters are
disseminating their content.

A company called Zatso.com, for example, takes a local newscast and cuts
it into video clips available on the Web, creating a personalized news
service. Microcast is another example of a company that aims to bring
broadcasters' content to the Web.

We already see evidence that the Internet can be a principle means of
delivering traditional video and audio content. Broadcast.com
demonstrated the power of that concept. And a new generation of wireless
Internet radios, capable of delivering thousands of streamed radio
stations, will soon hit the market.

So broadcasters, who own some of the most valuable content available,
are starting to explore ways in which they can harness the interactivity
and personalization of the Internet to better leverage the value of that
content. Only time and competition will determine whether the models
work, but the innovation is exciting.

# [The Network-Affiliate Relationship]{.underline}

# 

# Finally, there's the network-affiliate relationship. In the midst of the sweeping changes brought on by digitization and the Internet, the relationship between networks and affiliates is being fundamentally revamped.

# 

# At the inception of broadcast television, the medium was local. The influence of networks grew as nationwide content became more popular and affiliates devoted more and more of their time to the network feed. Networks paid affiliates handsomely to attain nationwide coverage.

Today, the network-affiliate relationship is in transition. Network
ratings and shares have declined over the last fifteen years. Networks
used to pay affiliates, today some are demanding reverse compensation.
Networks are repositioning their programming on cable channels.

How will these changes influence an affiliate's use of their digital
spectrum? Fox has negotiated control over its affiliates digital
bitstream; CBS has not. But CBS has asked its affiliates to reserve its
digital stream for as yet undefined opportunities in partnership with
the network.

Will affiliates abandon the networks? Will the networks abandon the
affiliates? Or will the networks protect their affiliates by securing
cable carriage for the digital signal during the transition period? Stay
tuned.

# [Policy Questions Ahead]{.underline}

# 

# The digital tornado has flung public policy debris all over. As we travel along the digital yellow brick road many questions remain: 

Will all datacasting be treated as an ancillary and supplementary
service, subject to statutory fees? Are the performance capabilities of
our digital television standard sufficiently robust to enable consumers
to receive quality programming indoors on their computers as well as on
their TV sets? Should cable operators be compelled to carry the digital
signal as well as the analog signal during this transition period?
Should broadcasters be allowed to terminate analog service early in
exchange for a payment from winners of the channel 60-69 auction?

And outside of the Commission, courts will continue to address the
complicated copyright issues associated with disseminating content
online.

Even with all of these looming questions, however, I am encouraged that
the broadcast industry is looking ahead, thinking of new business
models, searching for new revenue streams.

And I believe that the Commission has an obligation to take steps to
ensure that the American consumer has access to the best digital
broadcast system possible. It won't happen overnight.

## Conclusion

With a digital tornado blowing through town, and incredible changes in
the media world, we certainly are not in Kansas anymore.

Like Dorothy, broadcasters are learning that they have within themselves
the power to get where they need to go. It will take courage, brains,
and a heart to navigate there. The magical world of digital awaits.