NCPA - National Center for Policy Analysis

Government's Digital TV Order Threatens to Put Small Stations Out of Business

July 17, 2002

Even though consumers have shown little interest in high-definition television, the federal government has ordered all stations to switch from analog to digital broadcasting so as to enable viewers to receive high definition.

The order is generating financial havoc for the owners of small stations in small markets -- who are already reeling from low advertising revenues. Those who do not convert face the loss of their licenses. Stations in large cities can afford the million of dollars needed for conversion. But since the costs for the process are about the same for stations large and small, many of the smaller outfits are questioning their own survival.

  • When Congress and the Federal Communications Commission mandated the conversion in 1997, the objective was to save spectrum and raise billions of dollars by selling it -- plus, it seemed like a good idea at the time.
  • Nobody considered the financial impact on small stations.
  • Some 68 percent of the nation's 1,240 commercial stations failed to meet the government's May 1 deadline to begin transmitting some digital programming -- most of them in small markets.
  • Experts say it can cost $3 million to convert -- but a small station is lucky if it can make $300,000 a year in free cash flow.

The General Accounting Office has warned that it will cost small stations about 242 percent of annual revenue to go digital. With those kinds of figures, banks simply aren't interested in making loans to small operators for the conversion process.

Also, advertisers won't pay extra for their ads to appear on digital TV when only a handful of consumers have bought sets capable of receiving digital signals.

Source: David Lieberman, "Small TV Stations Reel Under Order to Go Digital," USA Today, July 17, 2002.

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