A Big Step In The Right Direction

EDITOR'S NOTE: TWICE is pleased to have Brad Anderson, vice-chairman/CEO of Best Buy and chairman of the Consumer Electronics Retailers Coalition (CERC) as a special Viewpoints columnist this week. He comments on the ongoing transition to HDTV. Along with his views please read related columns by our own editor-at-large Bob Gerson and business editor Jeff Malester about their adventures in the HDTV market, which start on p. 22.

For more than five decades, the consumer electronics industry has been left on the sidelines when it came to innovative products that can connect directly to cable television systems — until December 19, 2002.

On that date, fourteen consumer electronics manufacturers and seven cable multi-system operators, plus CEA and NCTA, filed with the FCC a package of agreements and draft regulations that propose taking a major step toward the competitive market that the Congress demanded in 1996, and the Commission ordered in 1998. The same day, the Consumer Electronics Retailers Coalition (CERC) issued a press release offering its strong endorsement, encouragement, and support.

CERC includes the major consumer electronics retailers and their associations — Best Buy, Circuit City, Good Guys, RadioShack, Sears, Tweeter, and Ultimate Electronics, plus the International Mass Retail Association, the National Retail Federation, and the North American Retail Dealers Association.

So far we have missed out on competing for about $10 billion dollars in commerce in digital set-top boxes alone. But these are only the tip of the iceberg. The digital cable market would overflow with innovation once it is open to all comers. HDTV receivers, game devices, DVD players, PVRs, home theater receivers, PCs, and entirely new products can and should offer direct and secure connection to digital cable networks and their services, unimpeded by the requirement of connection through a system-specific and proprietary "converter box."

The December 19th "plug and play" agreement may reflect a real and welcome commitment by major cable operators to achieving such a vibrant, competitive device market. We believe these operators recognize that as they face increased competition for programming and mounting demands on their capital, the offer of secure cable access as a standard feature of consumer electronics devices is now strongly in their own interest.

But reaching the December 19th agreement required overcoming formidable and vexing obstacles. One has been the demand of some content providers for copyright-based restrictions that would disappoint consumers. The "PHILA" license, as originally offered, would have imposed "Selectable Output Control" and "down resolution" on home interfaces — putting at risk, for example, the ability of owners of approximately four million HD-ready receivers to ever view HDTV programming over cable. We congratulate our colleagues in the cable industry for agreeing to recommend to the FCC that "Selectable Output Control" be banned by regulation, and that the FCC have the authority to ban "down resolution" as well. CERC has long been in favor of these outcomes.

The "Phase 1" recommendations would require direct and specific support of all "unidirectional" (non-interactive) "POD"-enabled devices on major cable systems, and would assure support for secure digital home network interfaces and for home recording. "Phase II," now under way, will aim for a package that extends similar specific support to "advanced interactive" devices. These will be able to offer, on a nationally portable basis, functions such as video on demand, game playing, product ordering, and whatever else commercial ingenuity can devise.

CERC's view is that a fully competitive [HDTV] market will be achieved only when, as in the telephone system, there is one set of network specifications, and one set of economic rules, to which all device constructors can refer and on which all can rely. This will assure that any competitor can develop new products that will be fully and reliably supported on the system. When devices are developed for attachment to the digital network, rather than for attachment to converter boxes, we will see combinations of the best features of present display, storage, game, and playback products, and entirely new product categories will emerge. The "tipping point" for competition and innovation will occur when cable operators can start basing their own service innovations on the enhanced capabilities of open-market competitive devices.

The Dec. 19 agreement is a huge first step in the right direction. CERC members will urge expeditious implementation by the FCC of Phase I, and a similar, pro-consumer outcome in Phase II.

Brad Anderson is vice chairman and CEO of Best Buy and chairman of the Consumer Electronics Retailers Coalition (CERC). For further information on CERC, visit www.ceretailers.org.