NIST GCR 03-859
Economic Impact of the Advanced Technology Program's HDTV Joint Venture

Executive Summary

The Federal Communications Commission (FCC) is requiring studios at U.S. television stations to convert their operations from analog to digital systems. According to the FCC, “the digital transition will increase efficient use of the spectrum, expand consumer choice for video programming, and increase the amount of spectrum available for public safety and other wireless devices” (FCC, 2003a). Analog television broadcasting uses signal modulation techniques that require more of the spectrum because empty channels are left between each co-located broadcast signal to prevent those signals from interfering with one another. Digital broadcasting allows the FCC to permit adjacent channel broadcasting, thereby freeing up portions of the spectrum for other valuable uses.

This conversion has profound implications for the cost and organization of studio operations. Under the analog broadcasting paradigm, broadcasters replaced or upgraded their existing studio equipment on an as-needed basis. But the digital conversion entails a complete overhaul of studio equipment and operations as the technologies to manipulate and pass through digital signals are different from those required for analog. The Advanced Technology Program (ATP) co-funded high-definition television (HDTV) joint venture (JV) led to new technological innovations that reduced the cost of the conversion to digital television (DTV) broadcasting for most television stations and quickened the introduction of new digital studio technologies.

Sarnoff Corporation, a research and development (R&D) firm with expertise in digital television technology, assembled a unique team and led that team to an ATP award to investigate new approaches to creating and operating digital studios. Sarnoff assembled a cross-functional team of broadcasting and information technology industry leaders to develop the requisite technologies. Participation from such a broad array of firms was deemed essential, as potential individual technology outcomes did not, according to participants, “make sense” on their own. For any resulting technology to be truly viable, it needed to coordinate well and be interoperable with other studio technologies. The JV leveraged the individual competencies of each member to create a whole greater than the sum of its parts.

ES.1 THE HDTV JOINT VENTURE TECHNOLOGY OUTCOMES

The JV successfully developed new technologies for DTV broadcasting, particularly a system for processing compressed DTV signals and a new technology that enables more efficient operation of DTV transmitters. These technologies were subsequently commercialized by their developers and have entered into service at television stations around the country. In addition, the JV developed methodologies and new approaches to creating and organizing digital studios that have impacted global broadcasting R&D.

The importance of these technologies has been recognized through receipt of several prestigious awards. Successful development of the transmitter technology earned Thales Broadcast & Media an Emmy Award for Technical Excellence from the Academy of Motion Picture Arts and Sciences in 2003. AgileVision’s compressed video processing system, the AGV- 1000, has garnered several emerging technology awards since its release, including those from Broadcast Engineering and the National Association of Broadcasters (NAB).

The JV’s research, development, and commercialization outcomes are summarized in Table ES-1. The JV set for itself seven technical goals, all of which were successful, though only five of the accomplishments have been incorporated into commercial products. Those that have not found full-scale commercial outlets have still had an impact. For example, IBM and Sun Microsystems both indicated that their R&D efforts (goals six and seven in Table ES-1) are molding approaches to new product development efforts.

This study quantifies the economic impact of goals one through four. The first three goals are incorporated in the AgileVision system, an integrated file server and compressed video stream management tool marketed to the nation’s public television (PTV) stations. AgileVision delivers to its users onetime benefits consisting of reduced equipment costs and faster installation turnaround. Ongoing benefits stem from fewer labor hours required to operate the AgileVision unit compared to alternative studio installations with more equipment pieces.

The fourth technology outcome, Thales Broadcast & Media’s Digital Adaptive Predistortion⁽¹⁾ (DAP) had similar onetime and ongoing benefits. The transmitter more easily met FCC spectral requirements than did competitor products, allowing end users to reap routine maintenance benefits and avoid costly filtering. End users also avoided the need to purchase more powerful transmitters to compensate for losses associated with installing more powerful filtering technologies. Thus, the transmitters were more cost effective. Furthermore, other transmitter manufacturers innovated to compete with Thales’ technological innovation.

JV members unanimously agree that the project was a productive and valuable experience. Members indicated that the technologies they developed during the course of the JV would not have been developed in the absence of the JV and ATP funding, or if so, not as quickly. Without NIST ATP funding, Sarnoff doubts that JV members would have expended the resources to develop these technologies, let alone make the effort to perform the research jointly. The venture was able to generate significant synergy through facilitation of communication and knowledge exchange public and private economic benefit from JV technology outcomes is compared to the costs for the entire JV.

To quantify the economic benefit of the HDTV JV, the analysis compared the actual situation of producers and customers of JV technologies to a hypothetical scenario in which the JV did not exist. In the absence of the JV’s AgileVision and DAP, this analysis argued that PTV licensees would adopt more costly studio installations and all DTV stations would use less efficient digital transmitters.

Table ES-2 summarizes the time series of costs, benefits, and net benefits for a range of JV technology market penetration rates. The range was necessary as the analysis proceeded using three hypothetical penetration rates for the AgileVision system in the PTV market. In all, net benefits range from $349 million to $526 million.

The estimated net benefits to industry from the program exceed the JV’s investment costs for both the lower and upper bounds of our estimate. The NPV of net benefits lies between $126 million and $205 million. The benefit-to-cost ratio is between 3.5 and 5.0. The social rate of return is between 24.9 and 31.7 percent.

^a To compute NPV, net benefits were discounted to 1995, using a 7 percent annual discount rate.

Source: RTI estimates.

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1.Digital Adaptive Predistortion was later renamed Digital Adaptive Precorrection to better convey the value of the technology. Both terms are used in this report.

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Date created: July 12, 2004
Last updated: July 13, 2004