Free over-the-air television broadcasts have been available to Americans for more than 50 years. According to the National Association of Broadcasters, the average television market includes over-the-air signals from at least seven local broadcast stations. Commercial stations may get their programming content through an affiliation with one of the top seven television networks (ABC, CBS, Fox, NBC, PAX, UPN, and WB) or they may be an independent broadcaster. Some commercial television stations are owned by large media companies or other corporations; others are owned by individuals or small companies. The United States also has 380 public television stations that receive funding from a variety of sources, including federal funding, state funding, commercial grants and donations, and private donations from individuals. Public stations tend to show more educational and arts programming, and many of these stations are affiliated with the Public Broadcasting Service (PBS). In addition to over-the-air availability, most broadcasters are carried on local cable television systems along with numerous cable programming channels. Also, satellite television providers now offer subscribers the signals of local broadcasters in approximately 40 television markets. In fact, according to FCC, more than 86 percent of television households nationwide now subscribe to some type of multichannel video programming service, such as a cable or satellite provider, rather than relying solely on over-the-air broadcast television. Since its inception, the broadcast television industry has relied on “analog” technologies to transmit over-the-air television signals. During the last few decades, however, media of all types have been transitioning to “digital” technologies. Because digital technologies can provide greater versatility and higher quality pictures and audio than traditional analog technologies, the broadcast television industry supported, and Congress and FCC mandated, a transition of broadcast television stations from analog to digital technology. This decision was based on the notion that a transition to digital television would bring the broadcast television industry into the 21st century with current and competitive technology, and would help to preserve for consumers the benefits of a healthy free over-the-air television service in the future. Traditional television broadcasting uses the radiofrequency spectrum to transmit analog signals—that is, signals in which motion pictures and sounds have been converted into a “wave form” electrical signal. Traditional analog signals fade with distance, so consumers living farther from a broadcast tower will experience pictures that are distorted or full of “snow.” With digital technology, the analog wave form is converted into a stream of digits consisting of zeros and ones. Although digital signals also fade over distance, because each bit of information is either a zero or a one, the digital television set or receiver can adjust for minor weaknesses in the signal to recreate the zeros and ones originally transmitted. Pictures and sound thus remain perfect unless significant fading of the signal occurs, at which point the transmission cannot be corrected and there is no picture at all. Digital technology also makes it easier to offer high definition television (HDTV). With HDTV, roughly twice as many lines of resolution are transmitted, creating a television picture that is much sharper than traditional analog television pictures. Another advantage of digital television is that “digital compression” technologies allow for more efficient use of the radiofrequency spectrum than analog technologies. Using digital compression, broadcasters will have the opportunity to use the 6 megahertz of spectrum required to broadcast one analog television show to transmit four or five different digital “standard definition” television shows simultaneously. This process of using the digital spectrum to show multiple programs at once is known as multicasting. To enjoy HDTV broadcasts or to be able to see multicasts of digital signals, consumers must own a television monitor that is capable of displaying these features and a digital tuner that is capable of receiving the broadcasts. The DTV transition involves a substantial overhaul and replacement of the stations’ transmitting and studio equipment as well as the eventual replacement of consumers’ analog television sets or the attachment of “digital converter boxes” to those analog sets. Thus, building DTV stations involves a large outlay of capital and effort by the broadcast television industry. Sometimes a new broadcast tower or significant modifications to an existing tower are required for the digital antennas. Broadcasters must purchase digital transmission equipment, obtain digital programming, and acquire equipment for converting analog programming to digital. One station representative with whom we spoke noted that broadcasters must then incur the costs of running two stations simultaneously during the transition period, even though viewership and advertising revenues are likely to remain roughly the same. To facilitate the transition, Congress and FCC temporarily provided each full-power television station (both commercial and public) with another 6 megahertz of radiofrequency spectrum so that they could begin broadcasting a digital signal. A transition period was established during which broadcasters would build their DTV stations and simultaneously transmit both analog and digital signals. In 1997, FCC established a timeline for this transition period. By May 1, 1999, the affiliate stations of the 4 largest networks (ABC, CBS, Fox, and NBC) in the top 10 television markets in the country were to have a digital signal on the air. By November 1, 1999, the affiliates of the 4 largest networks in the top 11 to 30 television markets were to have a digital signal on the air. By May 1, 2002, all full-power commercial television stations across America are to have a DTV signal on the air. By May 1, 2003, all public stations are to be broadcasting a DTV signal as well. The few stations that missed the earlier 1999 deadlines were granted extensions by FCC. In March 2002, FCC closed an application period for stations that have May 2002 deadlines to file for extensions. FCC said it will not issue any type of blanket waiver of the deadline, but it would allow extensions on a case-by-case basis. According to FCC, it also has the authority to sanction stations that do not meet their deadlines. FCC said it is currently considering what those sanctions might be and under what circumstances the sanctions might be imposed. The goal is for the transition period to end in December 2006. By that time, the analog signals presumably are to be shut off, and Americans are to be watching DTV broadcasts on either a DTV set or on an analog set with some form of a digital converter box. The government is supposed to “repack” the digital stations within channels 2 to 51. The federal government has reallocated some of the spectrum in channels 52 to 69 for public safety needs and some for commercial uses (such as mobile phone services). The public safety spectrum is currently being licensed, and the spectrum set aside for commercial uses will be auctioned later this year. However, Congress created exceptions to the 2006 date. In the Balanced Budget Act of 1997, Congress stated that no analog television station license was to be extended beyond December 31, 2006, except in cases where (1) one or more of the top four network affiliates in a market is not yet on the air in digital, (2) digital converter technology is not generally available in the market, or (3) 15 percent or more of the households in the market cannot receive DTV signals. The last exception—often referred to as “the 85 percent rule”—has the potential to significantly delay the cutoff of analog signals and the turnback of some spectrum beyond 2006. This is because the 85 percent rule might rely on consumer adoption of DTV equipment, which is currently market-driven (i.e., based on consumer demand, rather than on a government mandate) and does not appear at the present time to be progressing at a rate that will reach 85 percent in the next 4 years. In this section, we address several issues related to the progress of broadcasters to date in getting digital signals on the air. In particular, we discuss (1) the status of broadcasters in building the DTV stations; (2) the amount of digital, high definition, or multicast programming that stations are showing or planning to show; and (3) the stations’ perceptions of consumer interest in DTV and how broadcasters are promoting or planning to promote DTV to consumers. As of April 12, 2002, 24 percent of commercial television stations (298 of 1,240) had completed construction of DTV stations and were broadcasting a digital signal. Most Americans now have available to them an over-the-air signal from at least 1 DTV station, and many Americans living in larger television markets have several DTV signals available to them. Only 119 of the 298 current DTV stations were mandated to be broadcasting a digital signal before May 2002. Thus, some stations have elected to build their DTV stations and begin broadcasting a digital signal before they were required to do so. As for the progress of transitioning stations, we conducted interviews with representatives from a few transitioning stations and found them to be in various stages of building their DTV facilities. For example, one station had just begun planning for the construction of its DTV station and was currently analyzing its tower and equipment requirements, while another station was almost ready to start broadcasting a digital signal, several months before the deadline. Once on the air with a digital signal, broadcasters have been given some flexibility in determining how to structure their DTV services. A station can simply duplicate the programming shown on its analog channel by “converting” it to digital, or it can provide programming actually filmed in digital, which can include HDTV. A station also can choose to multicast or to take advantage of the ability of DTV to transmit text or data, such as stock quotes or electronic newspapers. There are concerns that if broadcast stations use their digital channel largely to duplicate the programming from their analog channel, consumers would have little incentive to purchase digital televisions sets and cable systems would have little incentive to carry broadcasters’ DTV channels. This lack of DTV adoption could delay the goal of having broadcasters vacate the spectrum in channels 52 to 69 by the end of 2006 to make the spectrum fully available for public safety and other uses. We asked current DTV stations what services they were offering over their digital spectrum, and they responded as follows: Seventy-four percent of current DTV stations are providing some amount of HDTV content on their digital broadcast channel. These stations reported an average of 23 hours of HDTV content per week. Affiliates of CBS—one of the biggest supporters of HDTV—reported providing more HDTV programming than affiliates of other networks. CBS affiliates of current DTV stations reported an average of 33 hours per week of HDTV programming. Affiliates of the smaller television networks (PAX, UPN, and WB) reported broadcasting no HDTV. Twenty-eight percent of current DTV stations said they are producing some of their own content in digital format, either in standard definition digital or high definition. In addition to offering high definition content, 22 percent of current DTV stations said that some of their programming included the multicasting of two or more programs simultaneously over their digital channel. We contacted a number of these stations to learn precisely what they were doing with their multicasting. We were told by several stations that they are providing a second 24-hour local weather channel or showing a local weather radar picture. Another station told us that they broadcast live feeds from several traffic cameras throughout the state to give current traffic and weather information. Our survey showed that within the first year of broadcasting in digital, commercial transitioning stations plan to do the following: Forty-three percent plan to show nothing more than content that has been converted from analog to digital. Thirty-four percent plan to provide some HDTV content. Eight percent plan to do some multicasting. Our finding that transitioning stations expect to show less digital content than current DTV stations are showing is likely because many of the current DTV stations are affiliates of the top four networks and are in major television markets. By contrast, transitioning DTV stations are more likely than current DTV stations to be unaffiliated with the top four networks or to be in smaller television markets. Unaffiliated stations have less access to the increasing amount of HDTV or other digital content that is provided by the major networks. Smaller stations sometimes rely more on syndicated shows—such as game shows, talk shows, or reruns of popular network programming—that are less likely to have been filmed in digital or high definition. Smaller stations also have fewer resources to buy the equipment necessary to film and produce their own digital content. In fact, only 10 percent of transitioning stations with annual revenues less than $2 million said that they expect to produce any digital content of their own within their first year of digital broadcasting. We asked current DTV stations to describe the overall interest level in digital broadcasts by the consumers in their markets. According to these stations, few consumers have a high interest in DTV. Seven percent of the stations said that consumers in their markets had no interest in DTV, and another 56 percent of the stations described overall consumer interest in their digital broadcasts as “low.” Stations that reported providing more high definition content did not report higher consumer interest than current DTV stations as a whole. Despite broadcasters’ perceptions of low consumer demand for digital and high definition television, only some of the current DTV stations reported undertaking promotion activities that have significant cost in order to promote or market their digital broadcasts. The two most prominent ways stations chose to promote their DTV channel—methods that do not involve great expense—were through a digital or high definition identifier running at the beginning of the program (52 percent) and by making information about digital programming available on the stations’ Web sites (50 percent). In addition to these methods, current DTV stations reported the following: Thirteen percent said they use advertising spots or promotions for specific shows available in high definition, and 22 percent said they advertise their DTV channel. Twelve percent said that their DTV channel is mentioned in the local television listings. Twenty-three percent said they do not promote their DTV channel. Compared with current DTV stations, only 6 percent of transitioning stations reported that they do not plan to promote their DTV channel. Thirty-five percent of transitioning stations said they plan to use advertising spots or promotions regarding their digital channel, 16 percent plan to advertise their high definition programming, and 33 percent said they plan to have their DTV channel mentioned in the local television listings. Transitioning stations answered our survey based on future plans and may or may not promote their DTV channels to the level they indicated on our survey. In this section, we address several issues related to the experiences of broadcasters to date in building their DTV stations. In particular, we discuss (1) the financial costs associated with building the DTV stations, (2) the problems stations reported experiencing (or the problems they expect to experience) in building the DTV stations, and (3) the various government reviews that are involved in building the DTV stations. Broadcasters must make large capital investments to begin broadcasting in digital, and many of the stations we surveyed reported problems in raising the necessary capital. We asked stations to report or estimate the approximate total cost they incurred or expect to incur in complying with the initial requirements for digital transmission—including expenses for a new tower or construction on an existing tower, transmission line, antenna, digital transmiters and encoders, consultants, licensing, and other capital expenditures. Our comparisons of reported costs by station types showed that the average reported costs per station among different types of stations were not dramatically different. Figure 1 shows that current DTV stations and larger stations on average reported somewhat higher costs than transitioning stations and smaller stations. For example, current DTV stations reported an average cost of $3.1 million per station to comply with the initial requirements for digital transmission, while transitioning stations reported an average of $2.3 million per station. Some of the lower cost reported by transitioning stations may be due to recent rule changes by FCC that were designed to reduce the amount stations must spend to meet the initial requirements for digital transmission. For example, FCC’s new rules allow stations to build less than maximum broadcast facilities. FCC staff said they believe that the costs of meeting the requirements for building DTV stations are significantly lower than the costs reported in our survey. The amounts reported to us may be due in part to stations’ reporting their actual costs of construction, even where construction exceeded FCC’s minimum requirements. At a recent meeting of the National Association of Broadcasters, one broadcaster said he was able to go on the air for approximately $125,000 and that most of the equipment he was using could be upgraded to higher power. However, another speaker stated that for some stations, FCC’s minimum requirements are not a long-term solution, particularly for stations that plan to show HDTV, and that upgrading the equipment at a later date could be problematic. Thus, some stations prefer to spend the money initially to build their DTV stations to exceed FCC’s minimum requirements for broadcasting a digital signal. Although there were no dramatic differences in the overall costs of building DTV facilities among various types of stations, our analysis of the reported overall expenditures as a percentage of station annual revenue did show considerable differences among various types of stations. For example, among current DTV stations the overall expenditures averaged 11 percent of annual revenues, while for transitioning stations the overall expenditures averaged 63 percent of annual revenues. For stations with annual revenues below $2 million (based on all stations), the overall expenditures averaged 242 percent of annual revenues. Thus, the overall cost of building the DTV stations appears to be more burdensome for some broadcasters than for others. Given the significant costs reported for getting a DTV signal on the air, it is not surprising that survey respondents cited funding as one of the most common problems they had experienced or expected to experience. Although the overall costs of building the DTV stations reported by broadcasters were fairly similar, the annual revenues of stations and the funding sources available to stations differed. Thus, the problem of obtaining funding did not appear to affect all stations equally. While 14 percent of the current DTV stations said they had experienced problems in the area of funding, 55 percent of transitioning stations reported funding as a problem. This difference raises concerns about the ability of some transitioning stations to pay for construction of their DTV stations and meet the May 1, 2002, deadline for broadcasting in digital. We asked stations what sources of funding they used or expected to use to pay for the building of their DTV stations. Almost half of all commercial stations that responded reported multiple sources of funding. As shown in figure 2, the most commonly cited source of funding for both current DTV stations and transitioning stations was funding from the station owner or parent company. Over 79 percent of current DTV stations had relied, in whole or in part, on their owner or parent company to provide money for their DTV construction. For transitioning stations, 62 percent reported obtaining some amount of funding from the station owner or parent company. This difference may be explained, in part, because stations with earlier DTV deadlines were more likely to have a large corporate parent, whereas transitioning stations are somewhat less likely to be owned by a large parent company. Regarding funding sources, survey respondents also reported the following: Transitioning stations were more than twice as likely to rely on debt financing than current DTV stations. Forty-three percent of transitioning stations reported that they had borrowed or planned to borrow money to fund the construction of their DTV stations, while 16 percent of current DTV stations said they had relied on debt capital. Six percent of the transitioning stations said they were considering sale of the station as a way to fund the DTV transition. We met with a representative of one TV station who said that sale of the station to a larger ownership group might be the only way for the station to fund its transition to DTV. Concerns about a reduction in the number of small, independent broadcasters serving local communities could arise should such sales actually take place. Seventeen percent of transitioning stations reported that they did not know how they would completely fund the construction of the DTV station. This uncertainty raises concerns about whether these stations will be able to broadcast a digital signal on time, given that our survey was conducted only 7 months before the May 2002 deadline. We also asked stations to select the primary funding source from the funding sources that they reported using. Both current DTV stations and transitioning stations most often named funding from the station owner or parent company as their primary funding source. However, 72 percent of current DTV stations said funding from the station owner or parent was their primary source, while 45 percent of transitioning stations listed a station owner or parent as the primary source. Eleven percent of transitioning stations reported that they did not know what would be their primary funding source. Some industry executives noted that there are ways to mitigate the initial costs of the DTV transition. We asked about some of these methods in our survey, and the responses showed the following: Some stations reported sharing a broadcast tower with other stations, which can be less expensive than having an individual, private tower. However, we found no relationship between reported shared tower use and reported lower average overall cost for construction of the DTV station. We were told by industry executives that a temporary or “side-mount” antenna can be less expensive to mount on the broadcast tower and can be used to delay the construction of a new tower. Twenty-seven percent of current DTV stations reported having an antenna in a temporary location; 26 percent of transitioning stations said that they plan to temporarily install an antenna. FCC currently allows a broadcaster to transmit a DTV signal at less than full power. For the broadcaster, this can save money on equipment purchases and energy bills. However, broadcasting at less than full power can reduce the effective market coverage and mean that fewer consumers can receive the over-the-air digital signal. Forty-five percent of current DTV stations reported that they are operating at less than full power and full market coverage, and 50 percent of transitioning stations told us they plan to operate at less than full power when they begin broadcasting in digital. One of the key physical facilities that broadcasters must have in place is the broadcast tower, which supports the digital antenna. We were told by industry executives that some broadcasters can mount the digital antenna on their current analog tower. However, other broadcasters need to increase the height of or reinforce their current tower, while still others must construct an entirely new broadcast tower on which to install their digital antenna. We asked stations what changes they required or expected to require from their existing analog towers. There was great variance among the stations in the need for tower work. While 18 percent of current DTV stations and 20 percent of transitioning stations reported being able to use their current tower without modification, 21 percent of current DTV stations and 25 percent of transitioning stations reported that they needed to build an entirely new tower. Once a station determines its tower needs, it can run into various problems related to constructing the broadcast towers and other facilities needed for DTV transmission. One of the most commonly cited problems among all stations, for example, was weather. Frozen ground, wind, and snow can cause complications in tower work, particularly in the northern states during the winter months, and can lead to delays in DTV construction schedules. Of the stations answering our survey, 41 percent of current DTV stations and 57 percent of transitioning stations cited the weather as a problem that had arisen or that was expected to arise. We spoke with representatives of three tower crew companies who told us that certain types of weather require tower work to be delayed. The tower crew company representatives noted that wind is a particular problem in tower work because the wind patterns above 1,000 feet can be significantly stronger than at ground level, making the work too difficult and dangerous to attempt. We also asked one of the tower crew representatives if the May deadline—following winter—created more problems with regard to weather. The tower crew representative told us that a fall or winter deadline may have been better because May through October were the best months for tower work and tower construction. Another concern noted by many broadcasters—again related to tower work—was “manpower availability.” The digital transition has caused many stations to be requiring tower work within a short time period. Broadcasters said that there are a limited number of tower crews in the United States that are qualified to do the type of work involved in constructing or reinforcing broadcast television towers and mounting broadcast antennas. According to our survey, 30 percent of current DTV stations and 56 percent of transitioning stations cited manpower availability as a problem area or expected problem area. Despite these views by broadcasters, we were told by representatives of the three tower crew companies that, although they are currently busy and have a significant amount of tower worked scheduled for the next few months, they do not feel overwhelmed by work related to the installation of digital antennas and are generally able to provide the services requested by broadcast stations. Broadcasters reported various other problems with building DTV stations, as shown in figure 3. We also examined whether any governmental reviews were necessary during the DTV transition process and, if so, whether such reviews had been the cause of any delays for the stations. Generally, these issues fell under the licensing or review authority of various government entities. Specifically, we asked stations if issues had arisen or were expected to arise regarding the following: (1) review, permitting, or processing by FCC; (2) review or permitting by local authorities; (3) environmental review by state or local authorities; (4) review by the Federal Aviation Administration (FAA); (5) review by the Bureau of Land Management; (6) review by the National Park Service; and (7) coordination with Canadian or Mexican governments. We also asked stations whether the review took longer or was taking longer than they anticipated and whether lengthy reviews or permit processing was considered a problem area. In general, the stations responded as follows: Some stations reported needing multiple reviews by various governmental agencies. For example, 15 percent of current DTV stations and 30 percent of transitioning stations told us they required reviews by three or more government entities. Stations located near a border with another country may require a review by Canadian and Mexican governments for coordination. Of the stations that reported they required such a review, 50 percent of current DTV stations and 73 percent of transitioning stations said the process of getting necessary approvals from Canadian or Mexican authorities had taken longer than they expected. Of the transitioning stations needing Canadian or Mexican review, 65 percent reported they had yet to resolve the international coordination issues. Review by FAA—which often must approve changes to the height of an existing tower or the construction of a new tower, in coordination with FCC—was noted by 19 percent of current DTV stations. Of those, 32 percent said the issue took longer than expected. For transitioning stations, 25 percent reported having or expecting to have an FAA review. In this section, we address several issues related to the progress of transitioning stations in meeting the May 2002 deadline to be on the air with a digital signal. In particular, we discuss (1) the number of transitioning stations that reported they have had problems or expect problems that might keep them from meeting the deadline; (2) the lengths of extensions to the deadline that stations reported would be realistic for their situations; and (3) the dates when stations reported they would have built DTV stations if the transition were based on market forces rather than government mandate. Seventy-four percent of transitioning stations told us that they had problems or expected problems that might keep them from meeting the May 1, 2002, deadline for having a digital signal on the air. In particular: Eighty-five percent of transitioning stations with annual revenues of less than $2 million reported that they had problems that might keep them from meeting the May 2002 deadline. Eighty-four percent of transitioning stations outside of the largest 100 television markets reported that they had problems that might keep them from meeting the May 2002 deadline. Stations that said they might not meet the deadline reported higher incidences of all types of problems. Funding was the most common problem, cited by 66 percent of stations that might not meet the deadline (funding problems were noted by 26 percent of stations that do not expect problems with meeting the deadline). In addition, of the stations that may not meet the deadline, 64 percent reported problems with manpower availability, 55 reported problems with equipment availability, 59 percent reported weather-related problems, and 45 percent reported lengthy permit or review problems. In contrast, of the transitioning stations that do not expect problems with meeting the deadline, 34 percent reported problems with manpower availability, 24 percent reported problems with equipment availability, 49 percent reported weather-related problems, and 26 percent reported lengthy permit or review problems. Station network affiliation and size of the station owner (based on how many broadcast stations the owner held) had little relationship to whether a station expected problems with meeting the deadline. In March 2002, FCC closed an application period for stations with a May 2002 deadline to apply for extensions of time to construct their digital stations. FCC is handling the stations’ applications on a case-by-case basis. FCC allowed stations that applied for an extension to note technical, legal, financial, or other reasons (e.g., natural disaster) for the extension request. Applicants had to show support for the reasons given and mention steps taken to solve or mitigate the problems. In our survey of broadcasters, we asked whether stations should be required to show a “good faith effort” in meeting the deadline before being granted an extension. Seventy percent of current DTV stations and 52 percent of transitioning stations thought that a station should be required to show a good faith effort. As of April 3, 2002, FCC had received applications for extension from 810 commercial stations and had granted 476 of these stations a 6-month extension. FCC granted extensions for more than 200 of these stations on the basis of technical problems alone (e.g., equipment delays). Over 180 stations were given extensions that were based on some combination of technical, legal, financial, or other reasons. No stations were granted extensions that were based solely on financial reasons. The 334 stations not initially granted an extension were sent Letters of Inquiry by FCC in order to obtain more specific information. FCC staff said that many of the letters sought more financial and technical information with respect to finalizing DTV construction plans and that most of the letters gave stations 15 days to respond. In our survey of broadcasters, we asked transitioning stations to estimate a “realistic extension” if FCC were to extend its deadline for them to be on the air with a digital signal. In general, smaller stations were most likely to believe that an extension of more than 2 years was realistic for them. Of the transitioning stations that expected problems with meeting the May 2002 deadline, only 19 percent considered an extension of 6 months or less to be sufficient, while 54 percent said that an extension of 2 years or more was realistic for their situation. Under commission standards, FCC staff may grant up to two extensions, each not to exceed 6 months. Further requests by a station for an extension of its DTV deadline would have to be granted at the commission level. From the responses to our survey, it appears that the 6-month extensions that FCC has granted so far may be insufficient for many transitioning stations and that additional rounds of applications for extension appear likely. We asked broadcasters to estimate when they would likely have begun broadcasting a digital signal—assuming they had been given the spectrum but were not under any government deadline to transition to digital—on the basis of market forces such as competition, technology, and viewer demand. While many current DTV stations said they would have broadcast digitally by the end of 2002, most transitioning DTV stations reported they would have begun broadcasting digitally much later, as shown in figure 4. A small percentage of stations reported that without a government mandate, they never would have chosen to transition to digital technologies. The digital television transition timeline established by FCC included an ambitious construction schedule for DTV stations. The level of difficulty in readying digital broadcasting facilities that was reported to us by transitioning stations indicates that many stations will have problems meeting the timeline. But even after construction of all DTV stations, only part of the DTV transition will have been completed. Because of the 85 percent rule (i.e., the requirement that 85 percent of households in a market be able to receive a digital signal before the analog signals are discontinued), much of the spectrum is likely to remain encumbered by analog broadcast stations until consumers adopt the necessary digital technologies. According to our survey, however, broadcasters currently perceive little consumer demand for digital and HDTV programming. Nonetheless, it appears that the broadcasters will move forward—some more slowly than others—with building the DTV stations. Other market participants—cable and satellite companies, content providers, consumer electronics manufacturers, and others—also play important roles in influencing the speed of the DTV transition. FCC recently addressed the role of these other market participants as well as that of the broadcasters in a letter from Chairman Michael K. Powell to Senator Ernest F. Hollings and Representative W.J. “Billy” Tauzin. In the letter, Chairman Powell proposed voluntary industry actions to speed the DTV transition by calling for the provision of more HDTV or other value-added DTV programming, more cable carriage of DTV channels, the provision of cable set-top boxes that allow for the display of HDTV programming, and the inclusion of over-the- air DTV tuners into almost all new television receivers by the end of 2006. If embraced by the industry, these actions could help to keep the DTV transition on track since their combined effect would be to encourage consumers to adopt DTV technologies. We will examine these critical issues in our next report on the digital television transition, which we expect to issue in November 2002. We provided a draft of this report to FCC staff for their review and comment. FCC staff believes that its Memorandum Opinion and Order on Reconsideration, which was adopted on November 8, 2001, may have a substantial impact on certain survey responses made before that date. In the order, the commission modified its rules to permit stations to adopt a more graduated approach to providing DTV service, initially operating with lower powered—and therefore less expensive—DTV facilities, while retaining the right to expand their coverage area as the transition continues to progress. We added information related to FCC’s order in this report. FCC staff also provided technical comments that were incorporated throughout this report as appropriate. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 10 days after the date of this letter. At that time, we will send copies to interested congressional committees; the chairman, FCC; and other interested parties. We will also make copies available to others upon request. If you have any questions about this report, please contact me at 202-512-2834 or guerrerop@gao.gov. Key contacts and major contributors to this report are listed in appendix VIII. To provide information on the progress in building digital television (DTV) stations and on broadcaster problems and concerns, we mailed surveys to all full-power, on-the-air commercial and public broadcasting stations. To develop our survey questions, we interviewed officials at the Federal Communications Commission (FCC) as well as officials of organizations representing industries affected by the transition to DTV. We also reviewed relevant documents, such as FCC orders and proposed rulemakings. We then conducted pretests with several individual broadcast stations to help further refine our questions, identify any unclear portions of the survey, and identify any potentially biased questions. These pretests were conducted in-person and by telephone with stations covering a number of different metropolitan areas. Two versions of our survey were developed, one for stations that had begun broadcasting a digital signal (“current DTV stations”) and one for stations that had not begun broadcasting a digital signal (“transitioning stations”). The survey questions and detailed survey results for commercial stations are contained in appendixes IV and V, and the questions and results for public stations are contained in appendixes VI and VII. To provide the population information, we acquired the MEDIA Access Pro database of BIA Financial Network, Inc., which is a private firm that specializes in broadcast industry data. This database provided us with the names, addresses, and other contact information of broadcast stations as well as information on such things as station size and ownership, station revenues, market size, and station operating status. We also used this database to determine which stations were commercial and which were public as well as which were broadcasting in digital and which were not. The digital broadcasting status listed in BIA’s database was combined with information from the National Association of Broadcasters’ Web site to determine which version of the survey to mail to each station. We mailed surveys to all full-power commercial and public television stations on the air at the end of September 2001. We sent a different survey to any station that indicated that we had misclassified its digital broadcasting status. As such, some of the stations that filled out the survey for digital stations began that service after September 2001. Our survey was not sent to low- power commercial broadcast stations because these stations have not been required by FCC to transition to digital technologies. In addition, the survey was not mailed to the eight stations in New York City whose broadcast towers atop the World Trade Center were destroyed in the September 11 terrorist attacks. Instead, we spoke directly to a representative of each of these stations to gather information about how the events of September 11 affected their operations generally and affected their DTV plans in particular. A discussion of the situations of the stations in New York City is provided in appendix II. We also adjusted the survey population to exclude the few stations that (1) had recently gone off the air, (2) indicated that they were not assigned a digital channel, or (3) were broadcasting outside of the United States. The resulting population to which we sent surveys consisted of 1,182 full-power commercial television stations and 372 full-power public television stations on the air at the end of September 2001. We first mailed our survey in early October 2001. However, on October 15, 2001, all incoming mail to our headquarters was halted due to the receipt of letters containing anthrax by several federal agencies in the Washington, D.C., area. We received no U.S. mail for more than 2 months. On December 27, 2001, we conducted a second mailing of the survey to all stations from which we had not received a survey response before October 15, 2001. This time, surveys were mailed from and returned to our Boston field office. The second mailing went only to commercial stations due to time constraints on the research phase created by the mail stoppage. For commercial stations that may have completed and returned the survey twice, only the original survey from the October mailing was analyzed. We made a third and last attempt to contact the commercial station nonrespondents in telephone reminder calls during the first 2 weeks of March. These telephone contacts resulted in an additional 237 questionnaires from late respondents (approximately 27 percent of all commercial responses). Of the population of broadcast stations, we received 1,036 of 1,554 usable questionnaires, for an overall response rate of 67 percent. We received 135 of 168 surveys from commercial current DTV stations (80 percent response rate) and 15 of 37 surveys from public current DTV stations (41 percent response rate). We received 727 of 1,014 surveys from commercial transitioning stations (72 percent response rate) and 159 of 335 public transitioning stations (47 percent response rate). We conducted two types of analyses of commercial stations to evaluate the possibility that the respondents might differ from nonrespondents. Although there is some evidence of differences, these are not sufficiently consistent nor large enough to provide a basis for adjusting our survey responses. The first type of analysis directly compared two measures of the size of the responding and nonresponding stations. The nonrespondents tended to be from larger markets and from larger ownership groups. For the transitioning stations, for example, 40 percent of the nonrespondents and 31 percent of the respondents were from the top 50 markets. The second analysis compared the early responses (sent between October and February) with the later responses (sent in March). The evidence was mixed as to whether the earlier or later responding stations might have more difficulties in meeting the DTV station deadline. On the one hand, transitioning early respondents were less likely than transitioning late respondents to give the direct assessment that they might have problems in meeting the deadline (73 percent and 80 percent, respectively). On the other hand, early respondents were more likely than late respondents to report experiencing specific types of digital transition problems. For example, a funding problem was reported by 19 percent of digital early respondents versus 5 percent of digital late respondents, and 62 percent of transitioning early respondents versus 43 percent of transitioning late respondents. No definite pattern emerges from these findings, and it is unclear whether differences are due to actual differences in the station characteristics of early and later respondents or to the differing proximity to the deadline for broadcasting a digital signal. Questionnaires were mailed to station managers but were completed by station managers, station engineers, or officials of the station owner or parent company. All returned questionnaires were reviewed, and we called respondents to obtain information where clarification was needed. All data were double keyed and verified during entry, and computer analyses were performed to identify any inconsistencies or other indications of errors. Because the questionnaires were mailed to all broadcast stations in the appropriate population, percentage estimates do not have sampling errors. Other potential sources of errors associated with the questionnaires, such as question misinterpretation and question nonresponse, may be present. This appendix focuses on the special circumstances of the broadcast television stations in New York City following the terrorist attacks of September 11, 2001. We did not mail our survey to the New York City stations, but instead conducted telephone interviews with the stations in December 2001 and January 2002. Since the attacks, the eight local broadcasters whose antennas and other equipment were located atop the twin towers of the World Trade Center have struggled to restore over-the- air service to their viewers. Of these eight stations, six said they had completed building their DTV stations by September 11 and were broadcasting digital signals. All six digital antennas were also lost in the collapse of the World Trade Center. All of the broadcasters with whom we spoke stated that restoration of their full-power analog signals was their highest priority. The destruction of the World Trade Center buildings on September 11, 2001, also destroyed the antennas, transmitters, and associated equipment of eight broadcast television stations. Lacking immediate backup transmission equipment or other immediate contingency plans, the stations ceased over-the-air broadcasts entirely on September 11. Several of the stations had direct fiber links to some or all of the cable systems on which their analog signal was carried; thus these stations were able to continue providing a signal to some portion of their cable viewers on September 11. In addition, several of the broadcasters were carried on the direct broadcast satellite (DBS) systems of DirecTV and EchoStar and, although in some cases the broadcast signals were momentarily disrupted, local broadcast channel service continued for satellite subscribers on September 11. Within 10 days of September 11, most of the stations said they had resumed over-the-air broadcasting from a temporary tower in Alpine, N.J. However, the broadcasters considered the move to Alpine a short-term solution. Station executives with whom we spoke said that, although they were pleased that the site was immediately available, they were disappointed to discover that signal weakness from the site meant that only about 70 percent of their viewers could be reached. Some stations attempted to increase coverage by arranging for additional cable providers to carry their signals via fiber links. However, we were told that large numbers of viewers—particularly in Brooklyn and Queens—do not subscribe to cable service. Station executives told us that fully restoring their over-the-air analog broadcasts was of the highest priority. It is the analog signal—not the digital signal—that the stations count on for their revenue stream. One executive estimated that his station’s signal is still lost to over 3 million viewers since September 11. We were told that it will take up to 3 years to achieve full analog signal restoration because each station must repair transmission lines, install new antennas, acquire backup generators, and negotiate for temporary and permanent space on rooftops and towers. An immediate need for the broadcasters was to negotiate the terms of placing antennas, transmitters, and other equipment atop the Empire State Building, which was the favored temporary location due to its more than 100-story height. By mid-October, nearly every local TV station had begun to broadcast from the roof of the Empire State Building. Although the Empire State Building seemed initially to be an effective substitute for the World Trade Center location, unanticipated constraints arose, including limited physical space, an aging infrastructure, and the lower height (as compared with the World Trade Center). First, we were told that space on the Empire State Building’s rooftop is severely limited. Many of New York City’s radio stations have broadcast from the rooftop for decades, and, as the rooftop is currently configured, there is little room for the TV stations to install new broadcasting equipment. Second, the station representatives said that television broadcasting is limited by engineering constraints related to the Empire State Building’s aging infrastructure. Unlike the World Trade Center buildings, the Empire State Building’s infrastructure is more than 70 years old. While considered a safe building for workers, it is nonetheless a fragile physical plant on which to place the amount of broadcasting equipment required by eight television stations. The aging infrastructure also creates wiring and powering issues. One station representative said that it simply may not be possible to wire the Empire State Building to power the necessary antennas, transmitters, and associated equipment. Third, the broadcasters used antennas perched on a 343-foot tower rising from a 110- story base when they were using the World Trade Center. The Empire State Building offers either operation from a 200-foot tower atop the somewhat lower roofline or operation from the 81st floor. In either case, nearby Manhattan buildings—even the Empire State Building itself—cause interference with the stations’ signals and prevent reception for some viewers. One executive we spoke with believed that the Empire State Building would serve more effectively as a backup transmission location. Another executive noted the importance of this backup role, since the events of September 11 so dramatically demonstrated the need for “transmission redundancy.” Broadcasting at less than their accustomed levels of power and sharing limited space at and near the Empire State Building’s roof, stations have continued to experience difficulty in reaching their entire audience. The Alpine site also reduces stations’ market coverage. Reaching Brooklyn and Queens has been particularly problematic because viewers in these boroughs must contend with signals that are weakened or blocked by a variety of Manhattan obstructions. One station executive told us that he is currently reaching only about 80 percent of his viewers citywide. Concomitant with securing temporary tower space at the Empire State Building is the stations’ need to find a new permanent location for their antennas. Currently, industry stakeholders are negotiating to select a location that is acceptable to all parties. Station executives with whom we spoke said that their preference is Governor’s Island, which is currently owned by the federal government and located in New York Harbor near lower Manhattan.The station executives consider the island to be a nearly optimal location because it is unused, virtually vacant, and lacks private residents who might object to the construction of broadcast towers. In addition, use of the island would allow all stations to be located together, thus obviating the need for each station to secure its own space in Manhattan proper. While station executives attempt to secure permanent broadcasting space, they must grapple with a range of budget and finance matters. We were told that, in particular, stations are dealing with (1) ensuring redundancy in equipment placement, which requires negotiating twice for building rent, consulting services, and other key purchases; (2) seeking reimbursement from insurers for losses directly attributable to the events of September 11; and (3) retaining high-quality programming so that affected viewers will return when the analog signal is fully restored. Station executives with whom we spoke emphasized the need for “redundancy” of their broadcast signal as a precaution against future terrorist attacks, natural disasters, or other calamities. This redundancy requires stations to invest at least twice the amount that would be required simply to replace the equipment that was destroyed on September 11, contract twice for the services of design and engineering consultants, and seek permits and negotiate rent at two distinct locations. In addition, stations are currently negotiating with their insurance companies to determine precisely what is reimbursable in the wake of the September 11 events. One station executive told us that his “complex claim” could surpass $30 million. Although some of this amount represents lost hardware, he said, some of it represents a request for reimbursement of lost revenue. The amount of lost advertising revenue is difficult to estimate and insurers have argued that the events of September 11 are not the sole cause of lower advertising revenues. Six of the eight stations had completed building their DTV stations before September 11, 2001, and all six lost their digital antennas. The other two stations were in the process of building their DTV infrastructure. Station executives with whom we spoke said that restoring full traditional analog service was their immediate priority. However, one executive noted the importance of regaining digital broadcasting capabilities in the long term. Ultimately, he said, viewers will want high definition content and other digital services. Another station executive mentioned that reacquiring digital capability was essential to recoup earlier financial investments in digital technologies. The eight stations’ reported costs-to-date on the digital transition ranged from $250,000 to $27 million. The station executives reiterated their commitment to high definition content, although they acknowledged that the viewers of New York City had yet to express widespread interest in HDTV. However, the executives anticipated that this will change as equipment prices decline and as HDTV is more aggressively promoted in coming years. Before September 11, 2001, local stations were broadcasting sports (such as the games of the New York Mets), cultural programs (such as Live from the Met), children’s shows, nature shows, and other special programming in high definition format. One station had plans for a high definition broadcast of the Tournament of Roses Parade on January 1, 2002. Stations with whom we spoke were unable to estimate precisely when they might have their digital signals back on the air, although one station was hoping to be broadcasting a limited digital signal by May 2002. We were told by the station executives that, in the wake of the World Trade Center attacks, FCC was cooperative, supportive, and accommodating—a full partner in helping to restore broadcast television service to the New York metropolitan area. Specifically, according to the station executives, FCC offered temporary licenses, facilitated stations’ moves to Alpine and the Empire State Building, and issued necessary waivers. One station executive said that FCC acknowledged and approved requests “in minutes, rather than days or weeks,” while another expressed appreciation that FCC had granted it temporary permission to file requests electronically. This executive expressed satisfaction with the proactive nature of FCC’s involvement, noting that an FCC official called him within a day of the World Trade Center attacks to ask how the agency might facilitate the rebuilding process. The executives felt that other federal, state, and local government agencies have been similarly cooperative, including the U.S. Department of Commerce, the Federal Emergency Management Agency, the Federal Aviation Administration, and the Port Authority of New York & New Jersey. The federal mandate that all full-power broadcast television stations must transition to digital technologies also applies to the nation’s 380 public television stations. FCC has ordered that these stations have a digital signal on the air by May 1, 2003. We mailed surveys to all full-power, on- the-air public stations. Public stations were sent the same survey as commercial stations. Just as with the commercial stations, they were sent one version of the survey if they were already broadcasting a digital signal (“current DTV stations”) and another version of the survey if they had not begun broadcasting a digital signal (“transitioning stations”). We did one mailing to the public stations in early October 2001. For more information on our response rates, see appendix I. Our survey responses from public stations were often similar to the responses of commercial stations. In this appendix, we report mostly on areas where survey results differed from those of the commercial stations. See appendixes VI and VII for complete results from the public stations. As of April 12, 2002, according to FCC, there were 60 public stations on the air with a digital signal. Costs reported for the digital transition were $3.0 million for public current DTV stations and $2.6 million expected for public transitioning stations. Again, the costs are not dramatically different (the costs for commercial stations having been $3.1 million for current DTV stations and $2.3 million for transitioning stations). One of the biggest differences between public and commercial stations was the reported funding sources for building the DTV station. Commercial stations often relied on funding from the corporate parent or owner. For public stations, the most reported funding sources were state government funding, station cash reserves, federal funding or grants from the National Telecommunications and Information Administration, and fund-raising or private grants. Both public current DTV stations and transitioning stations reported that they relied heavily on state government funding sources. Current DTV stations also reported relying heavily on station cash reserves. The public stations that had already gone on the air with a digital signal— all of which chose to do so ahead of the schedule set by FCC—reported that they were often providing their viewers with high definition content. Eighty percent of public current DTV stations said they were offering some HDTV programming. Many had their digital signal on the air constantly; the stations averaged 50 hours per week of HDTV content and 66 hours per week of multicasting. Two-thirds of current DTV stations said they were producing some of their own content in digital. Of the transitioning stations, most had various plans for their digital channel, including 84 percent that said they planned some amount of HDTV and 73 percent that said they planned some amount of multicasting. Fifty-three percent plan to produce their own content in digital. As for problems that the public stations were experiencing or expecting, funding ranked as the most reported problem. Similar to the commercial stations, funding was said to be a problem by 76 percent of transitioning stations. Weather was reported as a problem by 57 percent of transitioning stations, and lengthy permit reviews were reported by 30 percent of transitioning stations. Another difference from the commercial stations was the number of public transitioning stations that said they might not make the deadline for broadcasting a digital signal. While 74 percent of commercial stations said this, 45 percent of public stations said this. It is likely that the additional year given to public stations in the FCC’s schedule partly explains the lower number of public stations that think they will fail to meet their deadline. There were also differences in the extensions that public stations felt they might need from FCC. Thirty-eight percent of public stations said they would need an extension of 2 years or more, compared with 54 percent of commercial stations that said this. Lastly, public stations were more optimistic about when they would have had a DTV signal on the air had they not been given a timeline. Fifty-two percent of public transitioning stations said they would have been on the air in digital by 2006 (compared with 46 percent of commercial transitioning stations). In addition to those named above, Naba Barkakati, Jason Bromberg, Aaron Casey, Michael Clements, Michele Fejfar, James M. Fields, Rebecca Medina, Christopher Miller, Emma Quach, Kevin Tarmann, Thomas Taydus, Madhav Panwar, Mindi Weisenbloom, and Alwynne Wilbur made key contributions to this report. The General Accounting Office, the investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. 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Summary: U. S. broadcast television stations are now switching from analog to digital television (DTV). The transition to digital technologies was sought by many broadcasters and was mandated by Congress and the Federal Communications Commission (FCC). FCC established 2006 as the target date for ending analog transmissions---a deadline later codified by Congress. At least 24 percent of all commercial television stations are now broadcasting a digital signal. However, these stations report little interest in receiving DTV. Transitioning stations reported that funding was one of the most prevalent problems. Seventy-four percent of transitioning stations indicated that the problems they are facing are so significant that they may not be able to begin broadcasting a DTV signal by May 2002, as required. Sixty-eight percent of transitioning stations said that a realistic extension for them would be one year or more. Thirty-one percent of the transitioning stations that said they might miss their May 2002 deadline reported that, if the transition were driven by market forces such as competition, technology, and consumer demand, they likely would not be on the air with a digital signal until after 2010. Another four percent of these stations reported that without a government mandate, they likely would never transition to digital.