On the future of ATSC 3.0…

NEXTGEN TV Could Capture A Significant Swatch of Broadband-Enabled Cord Cutters, If Only the TV Industry Would Get Out of the Way

The Drivers

  • Broadband and OTT TV are ubiquitous.

Eighty-five percent of US households subscribe to high-speed broadband internet services, nearly 90% of which watch over-the-top streaming video services like Netflix. Half of adult OTT viewers spend more time each day watching streaming video on TV than they do broadcast or cable programming. This rate is certain to increase, just as it has since the use of MVPD services peaked more than a decade ago.

  • The costs of SVOD services continue to grow at rates above inflation.

Services like Netflix originally positioned themselves as a low-cost alternative to pay-TV services, with unlimited on-demand access to ad-free shows and movies. That proved a hell of a value proposition, so much it catalyzed the growth of the OTT industry and the migration of TV viewers from legacy sources to streaming video.

Today, neither “low-cost” nor “ad-free” are necessary features of SVOD services. A household can easily spend as much on SVOD as pay-TV services. April 2023 Aluma research found 60% of US SVOD households spend more than $50 each month on the services, the equivalent of basic cable TV for those bundling with cable broadband. Unfortunately, content owners and distributors—be they pay TV or streaming—are locked in a “vicious cycle,” the former charging the latter ever-greater retransmission fees, the latter passing them onto subscribers as ever-greater retail prices.

  • The SVOD “gravy train” has run its course.

Peter Drucker once explained the marketplace views an innovative product or service as follows:

“For a long time, there is awareness of an innovation about to happen….Then suddenly there is a near-explosion, followed by a few short years of tremendous excitement, tremendous start-up activity, tremendous publicity…. Later comes a ‘shakeout,’ which few survive.”

If you have not yet recognized SVOD is in the “shakeout” stage, it is. Far too little new demand and far too many competitors to float all boats. Consequently, third-party investments decline, smaller competitors close shop or are acquired, and larger companies become even larger.

As I predicted in 2018, saturation is now front and center for large SVOD operators. Investors have put management on notice: stop spending endless billions on content and growing subscriptions, and start optimizing revenue—in other words, spend less but charge more. This shift is in part behind the price increases we have seen in the last two years, along with the massive layoffs and declining content libraries.

If this is indeed the future of SVOD, operators should expect more paid subscribers to shift from ad-free services to less expensive or free video services.

  • OTA is not yet dead…

While most analysts argue OTT was the last nail in the coffin over-the-air (OTA) terrestrial broadcast, that is not (yet) the case. One-in-five broadband households watch free live OTA broadcasts, a rate consistent over the years even as broadband became pervasive. (The uptake of residential broadband subscriptions grew by 10M between 2018 and 2022, meaning the net number of OTA+BB households grew by 2M during this time.) Though its role in mainstream TV homes has diminished, it remains the last respite for consumers to enjoy live broadcasts (especially sports) without paying to access it.

  •  …and the next-generation is promising.

“NEXTGEN TV” is the consumer brand name for ATSC 3.0, an IP-based terrestrial broadcast technology that, in the words of FCC, “enable[s] broadcasters to deliver an array of new video and non-video services and enhanced content to consumers [by] merging the capabilities of over-the-air broadcasting with broadband viewing and information delivery methods of the Internet, using the same 6 MHz channels allocated for DTV (digital TV) service.” For consumers, 3.0 allows them to watch ultra-high-definition video with immersive audio and other advanced features, all for free.

As of March 2023, the FCC had licensed 3.0 transmissions for 66 US markets covering 60% of US households. (A geographic illustration of current availability can be found here.) Industry optimists believe NEXTGEN TV could be available to most all the top 200 markets within two years, 80% of the public. Unfortunately, recent progress has been disappointing, causing the National Association of Broadcasters (NAB) to lobby the FCC to accelerate the transition to ATSC 3.0 and end “the wasteful dual transmission” of both 1.0 and 3.0.” In April, NAB announced it will collaborate with the FCC to help propel NEXTGEN TV adoption and develop a roadmap to advance 3.0. (To date, such proclamations have been little more than rhetoric for industry journals.)

Both indoor and outdoor 3.0 antennas range in price from less than $50 to more than a few hundred, depending on power and range. Compatible tuners can be embedded in televisions or purchased as a separate device (e.g., Tablo, HDHomeRun 4K Flex, or Zapperbox). Prices for 3.0-compliant TVs range from $800 to more than $2,000, while prices for ancillary tuners range from $50 to more than $300.

The Impediments

In such an environment, consumers should be very interested in a free 4K TV service featuring the best of live sports, local news, and prime-time shows, all in immersive audio. What part of that statement is not compelling?

Because it’s good for consumers, however, doesn’t mean it’s good for the TV industry. And therein lies the rub.

  • Broadcasters have no interest in pushing 3.0.

Given the continuing decline of pay-TV subscriptions and shrinking audiences, one would think major broadcasters (i.e., ABC, CBS, Fox, and NBC) would have quickly embraced the standard to counter these losses. Not so. Yes, the FCC still requires them to deliver programming over-the-air for free (which they have long worked to reverse), but they see no reason to do so in 4K with immersive audio, and plenty of reasons not to.

Networks are one-quarter of the way toward moving their best broadcast content behind a paywall; in this case, their own D2C SVOD services, where they enjoy both subscription and advertising fees.[1] A key strategic tool in this process is launching new shows on their app instead of their live broadcast network and increasing the time between the two. By depleting live broadcasts of high-value content, so they wager, viewers will have no choice but to pay for the streaming service. No part of this strategy includes free OTA services in 4K and immersive audio.

Further slowing diffusion, the large broadcasters are (rightly) demanding that new 3.0 equipment support encryption to defend against illegal rebroadcasts. This is in fact part of 3.0 standard, but enforcing it has delayed manufacturing of new 3.0 boxes and created concern among consumers that equipment they purchase now may soon be obsolete. Encryption solutions usually require only a software update, so the impact of the delay should in theory be minimal. Unfortunately, to date very few OEMs have expressed support for this effort.

Comcast recently added DRM to several of its NBCU broadcast stations. Cord Cutter News broke the story in the third week of May, noting most all the 3.0 TVs and tuners in the marketplace and user homes do not support DRM. Until the FCC issues a DRM standard all tuners can use, users will see a blacked-out screen saying the channel is not available. Talk about cart before the horse….

  • Smart TV OEMs have been slow to embed 3.0, much less promote it as a differentiator.

Without widespread support from TV OEMs, NEXTGEN TV will remain a hobbyist fascination versus a mainstream video solution. To quote NAB’s January 2023 letter to the FCC,

“The single biggest factor in the success of this transition is almost completely out of our control – it is up to the consumer electronics industry to build the devices that consumers will use to access our signals. By signaling support for ATSC 3.0 as the future of broadcasting, the Commission can help ensure these devices get built and marketed. In contrast, a lack of support will slow the pace of deployment and eventually we may be stuck.”

As TechHive’s Jared Newman noted, the 2023 lineup of TVs supporting ATSC 3.0 looked much the same as 2022, if not 2021. (Here’s the current list of 3.0 TVs.) The least expensive TV from Samsung that supports NEXTGEN TV is $1,800, which is a big improvement on earlier sets but still above the $1,000 price tag that seems to divide early adopters from mainstream buyers. Then again, Hisense offers a 55-inch QLED smart TV with ATSC 3.0 support for $700, in the sweet spot for mainstream diffusion.

Unfortunately, as with broadcasters, major TV OEMs have little interest in providing viewers free access to live linear channels, as it diminishes the time spent watching streaming video services via smart TV app stores, which generate a growing amount of advertising revenue for them.

  • Lack of support among mass-market retailers

Given that 3.0 is the only OTA technology that supports 4K, HDR, and immersive audio—precisely the hot buttons for today’s TV buyer—you would think mainstream CE stores would note this feature upfront, either in the heading or as one of the bullet points listed as a set’s capabilities. Not so much.

Best Buy, for example, lists only “digital tuner” as a punch choice for TVs, so any device with digital TV tuner will appear when a search is activated. When you explore sets with a digital tuner, you must dig to find whether it supports ATSC 3.0. For reference, Amazon is no better about it.

  • Lack of a Clear, Compelling Market Message

The biggest hurdle facing NEXTGEN TV is not technical viability or even availability, but the lack of a full-throated marketing campaign that exploits TV, social media, and mobile platforms to speak to today’s connected TV viewers in terms they understand.

Nine-in-ten adult broadband users are familiar with free over-the-air TV broadcasts, including 80% of those age 18 to 34, a highly valuable market. Because of the recalcitrance of the TV industry and the absence of mainstream advertising, however, only 40% of adult broadband users have heard of NEXTGEN TV or ATSC 3.0, and only 5% currently use it—this despite being launched as a consumer brand in January 2020 and new equipment hitting the market in 2021.

Those supporting uptake of 3.0 must create memorable messages focused on the:

  • Rising costs of paid video services, whether MVPD or SVOD,
  • Relative ease and low costs of deploying NEXTGEN TV at home,
  • Range of high-value live sports in 4K and immersive audio they can enjoy for free, and
  • Cost savings that will accumulate in short order.

Without an aggressive marketing campaign that speaks to mainstream buyers and focuses on these benefits, ATSC 3.0 will remain in the hobbyist realm.

Opportunity (Missed?)

So who should make the next move to support 3.0? Smart TV OEMs, without a doubt.

NEXTGEN TV offers them a way to (1) pitch their sets as “the” source for both streaming video and the best of live broadcast sports and other high-value content, and (2) further reduce the control any individual MVPD or SVOD provider has over the user interface. This has been their goal for a decade, and adding NEXTGEN TV could make it happen.

Imagine smart TV OEMs embed ATSC 3.0 in televisions under $750 and aggressively promote them to mainstream consumers with as much energy as they have every minor improvement in display technology. It would  grow the number of households using ATSC 3.0 by six million in the next two years. Should a major tech vendor like Amazon—which sells 3.0 TVs and antennas—push the technology, additions could exceed 10 million during the same time.

If they do not, and NEXTGEN TV fails to take off in the next three years, it will be relegated to the bin of disruptive ideas never actualized. It is now or never.

[1] Until 1992, broadcaster revenue was comprised almost exclusively of advertising sales. From that time forward, however, broadcasters could charge cable operators carriage fees, which creating a new stream of revenue.