MR. SCHMID: Our moderator is Jonathan Thompson. He's Vice President of Client Development and Strategy for William Kircher & Associates which is a full service advertising and marketing agency dedicated to the business-to-business market. Previously he served as Vice President Communications and Strategic Relations for CEMA, which stands for Consumer Electronics Manufacturers Association.

Next to Jonathan is Peter Fannon who is General Manager and Director of Government and Public Affairs for the Matsushita Electric Corporation of America. Peter manages legislative and regulatory matter for Matsushita and helps coordinate the planning and implementation of digital and high definition television products and services. Before joining Matsushita, he was active in Advanced Television Development and was President of Advance Television Test Center. He is also Chairman for Citizens For HDTV, President of the National Association of Public Television Stations, and Director of Planning, Public Broadcasting Service; and we both have the same name.

Next to Peter is Robert Olin Niles. He's Vice President, Director of Engineering at ABC Inc. Owned Television Stations, a position he has held since 1975. Prior to joining ABC, he held top positions in engineering at WKBW television in Buffalo, WJXT-TV in Jacksonville, and WTVM television in Columbus, Georgia. Robert is a member of many professional associations and committees.

Michael Petricone is Assistant General Counsel/Staff Director of Government and Legal Affairs at CEMA. Michael has been actively involved with digital television issues since joining CEMA in 1994. He helped found the HDTV model station project, the nation's first commercial digital television station. He's a frequent speaker on issues concerning digital television and consumer electronics.

MR. THOMPSON: These three gentlemen ate, slept, breathed a nightmare about the process of the transition to digital television. The FCC came forward and said low and behold we bestow upon you this new spectrum that will be called digital television. What they failed to do, in my humble opinion when they did that little endeavor was that they forgot that there were about a little over 100 million homes that had an analog television standing in their living room, their bedrooms, or family rooms and all of the infrastructure that comes with it.

To the government's credit, they figured they had a solution for everybody that they would make that transition over a number of years. In their estimation they thought let's give the stations, manufacturers and others about ten years or so to make this transition smooth. For those of you that know anything about transitions technology, and those of you in this room I assume are going to learn very quickly, that there is no such thing as a transition. Nothing like this has occurred in our lifetimes. It's not anything like color transition because we had a signal that was basically the same, it was just black and white. With the onslaught of digital television, the picture will be completely different. We will go from a 4x3 to a 16x9. We will go from a monologue and in some cases stereo as you all know, but for the most part it's going to eventually have to go to a 5.1 channel surround sound. So we have digital pictures that are changing the format, we have audio that has changed, and we also have production and post-production that will change.

So with that we come upon a whole host of changes, and these three gentlemen can enlighten all of us a little bit about what to expect over the next three, to five, to seven, and hopefully next ten years. As I said, I don't think it will be an easy transition. I don't mean to scare you, but you should be prepared. Everyone will be affected. Anyone that has watched and listened to television or had to sell in the marketplace television product, and I mean everything about that from advertising to the actual sets themselves to infrastructure to make the television system and stations work. The whole paradigm will change. If I haven't sufficiently scared you, these three gentlemen will get you energized and begin thinking very seriously about how you need to look at the sales process, the marketing process, and the whole station process that you interact with.

So with that I would like to begin, and eventually we will take questions, but I would like to begin with what I think is a pretty straightforward question. As I said, the transition has begun. The ten cities, the agreed upon cities will be going on the air very shortly. I would like to ask each of you, and start with Michael, how easy will it be for set manufacturers, the retail community, broadcasters and the consumer? Will it be a trouble-free transition Mike, or will the viewers/advertisers see a whole set of changes redefining the traditional broadcast model?

MR. PETRICONE: First of all it's difficult to describe and to understate just how complicated this transition is for a consumer. For the viewer watching in the living room, a television is their entertainer, it's their educator, it's their companion. It's like their best friend. What we're doing is we're telling people to go out and find themselves a new best friend. From a psychological point of view, that's a very difficult thing to do. That's a big thing to ask. From a broadcast and a technical point of view, making this transition work, it's not just like NTSC where you put out a signal. This transition is going to require thousands of companies in many different industries, companies and industries with very different objectives, viewpoints and capabilities to come together and work cohesively together.

It's a very complicated thing. People often describe this as a revolution in TV. You can see what they're getting at, but it's a little bit misleading. It's an evolution! It's going to take a long, long time. You know it's not a sprint. It's going to be a marathon. Like a marathon, you don't judge who is going to win by who's ahead after the first 100 yards. So it's going to be a slow process, but at the same time it's an inevitable process. This is a little bit like our generation's version of the Apollo Project. All these industries came together and came up with this wonderful technology, and there are going to be bumps in the road, and there are going to be setbacks, but eventually it is going to work and it's going to be wonderful.

Digital, right now is an inevitability, and it's an outstanding product. It is going to be long, it is going to be slow, there are going to be bumps in the road, and analog and digital are going to coexist for a long, long time. For those of you who are at stations and for those of you out in the audience who are under the age of 45, I will say that some day you will turn off your analog transmitters, but it's going to be a success but slow going.

MR. THOMPSON: Robert, when do we going to turn off your analog signal?

MR. NILES: It is a complicated process. It's taking a lot of resources, a lot of people and a lot of new hardware that we're receiving day by day. At the three stations that we promised the FCC to have on the air November 1, some of it's never been plugged together before until it arrives.

MR. THOMPSON: What are those three stations?

MR. NILES: Philadelphia, Los Angels, and San Francisco. As the equipment comes in and you plug it together and it doesn't work, then you spend time trying to figure out why it doesn't work. We have manufacturers running in and out the door trying to help get all that stuff glued together, but it will all come together; and I'm sure it will all work well, but it is a very complex process. In terms of when we can shut down the NTSC channel, our goal is to do that as soon as we can, but, of course, that's our bread and butter and we're not going to do anything to hurt it. At the same time we don't want to go on forever running two program services that will actually be simulcast at some point in time. So the sooner the better from that standpoint.

MR. THOMPSON: Peter, along that line Panasonic, your company, is a leader in television both on the commercial side as well as on the consumer side. You've got a different perspective on this. You've got to support the stations—many of these stations are in the audience-but you've also got to support them, their needs, and develop a plan for this product. How is that going to change from the set manufacturer's perspective?

MR. FANNON: Well it does take two to tango, and that means you need an audience for the signal that you're sending and you certainly need an audience for the advertising that's going to support that signal, at least in the beginning where traditional broadcasting forms will probably prevail—that is, advertising supported, mass audience oriented programming.

I think one of the things that changes the model a little bit, but it's over time-it's certainly not in the next two or three years along—is that going digital makes so many other things possible because of its digital nature, because of the flexibility inherent, and because of the interrelationships that digital eases among media. The pressures are on broadcasting as a traditional medium, to become a potential supplier above and beyond basic programming. For the set manufacturer, then the challenges at first are to try to drive consumers to stores at least to see what the new service is and to give them a chance to assess whether they like it. We hope to build enthusiasm and ultimately an interest and willingness to buy. We hope that that enthusiasm will increase rapidly, and prices decrease, because to get a mass audience, the prices for receiving equipment will have to be considerably less then they're starting at now.

MR. THOMPSON: That raises a good question. Maybe Michael, he can address this as well. Early versions of the sets we've seen in the marketplace already, $7, $8, $9, $10,000. How likely before we see the average price or the average consumer able to go out and say hey I can buy that product, I can afford it? Obviously in cities where there are signals, when do those two curves start coming together?

MR. PETRICONE: Yes it's true the first sets are going to be expensive, but then again the first sets are essentially going to be hand built. This issue about prices is kind of deja vu all over again. For those of you who are at all familiar with the consumer electronics industry prices decline very rapidly after a product is introduced. I think last year a DVD player cost $1,500 or so, and now you can get one at Wal-Mart for $300. That's the way our industry works. Over the last six years the consumer price index has gone up 20 some odd percent and the prices of our products have gone down by 30 some odd percent. They are, as Jonathan said, going to be expensive.

For just a little bit of background, however, people are willing to put a substantial amount of money into their home entertainment. There are about 20 million American homes that have spent over $2,000 on their television right now, and those are for analog TVs that don't give nearly the level of performance for digital televisions. So we think that even at that initial high price point, there is a market out there, and there is certainly going to be a much higher demand for sets than there are going to be sets available in the first year. As those sets are bought, you create economies of scale and the price comes down.

The point is the consumer's have options. There are always going to be those consumers who are going to be willing to pay a premium price to be the first one on the block to have this extraordinary new technology. Then there are going to be some consumers that are going to wait until the price comes down a little bit. There are other consumers who want to access digital programming but don't want to make the investment right away on a digital set that are going to purchase a digital set-top box which will translate the digital programming for an analog set.

There are many options available to consumers depending on what their priorities are and what their budget is. Even at those initial price points we feel there is going to be a very strong demand for those first sets.

MR. THOMPSON: Robert or Peter, do you have a comment? You raised the programming issue. CEMA has been working pretty hard with a lot of software providers. Can any of the three of you address the programming issue and what we can expect to see coming over the horizon in the short term in terms of HDTV programming?

MR. NILES: At ABC we're committed to doing several hours a week of movie type HDTV programming. November 1st will open up with "101 Dalmations" which will be an HDTV feed to the affiliates that are equipped, and I think at that point we believe we will have 12 to 14 affiliates in major markets. The audio will be 5.1 channel Dolby. I don't know how many of the affiliates are going to be equipped to do that, but the owned television stations will be doing that particularly in Los Angels. It's important that we do it in Los Angeles.

MR. THOMPSON: Peter, what are you hearing from your sources on programming?

MR. FANNON: Well on programming, our company is trying to be as helpful as it can be in both getting new production started and in sponsoring the conversion of existing film-based product to high definition and in some cases straight standard definition.

In addition to working with the networks at various levels and sometimes the affiliates in larger groups to get production capability which will only come online over time, some of the products that Panasonic has introduced in the last couple of years have become the work horses already of the HDTV production world. Included are the D5HD tape machine which is a multi-format recorder. One box does it all, can handle HDTV. In fact we hope on the consumer side to match that kind of performance and give a further option to consumers encouraging them to get an HDTV set early.

At the end of this year we will introduce for under $1,000 an HDTV-capable recording digital VHS machine. That's at a price point in today's dollars that's less than half the introduction price of VHS machines what's now nearly 18 years ago. That recorder does it all. It does standard definition, it does NTSC, and it does HDTV. It records the bit stream, and when you play it back through your television set, then it displays the full HDTV recorded at home. We're trying to find ways that give comfort to consumers to buy in early in order to use and capture the programming that is available.

We're also spending a good deal of time, and we're beginning to announce now a good deal of money spent on supporting and advertising programs that are being broadcast in HDTV, and we're trying to help raise market awareness of HDTV launches. We intend to support the launch in as many cities as we can as each station comes online by widely publicizing in print and on television the fact that it's online, that it's doing good things, and that digital has hit, and by the way check out your local stores for the new Panasonic products.

MR. THOMPSON: You raise a really good question. Education and the consumer and what they can expect. What are the manufacturers doing and what should the broadcasters be doing to legitimize HDTV in the eyes of the consumer? I was watching TV in Washington the other night, and a scroll came across the screen that says we apologize for any transmission problems, but we're putting up our digital television antenna. My wife looked at me and she goes, "Oh wow! We're going to have digital television pretty soon!" I said, "Not exactly!

MR. THOMPSON: Michael, what's CEMA doing to try and get the consumer to understand what this whole thing is about and what can some of the broadcasters are doing? What should they be doing?

MR. PETRICONE: It's important that there are a number of parts to this. You've got he broadcasters, the retailers, the manufacturers. It's important that all the parts of this work together to get the message out.

We've been working both nationally and around DC with broadcasters and retailers to ensure that consumers are educated. We have a certification program to give manufacturers a way to tell consumers that a given set will receive all of the formats that broadcasters are going to be sending. Some education has to be done. Luckily, especially the first generation consumer, the consumer that is going to come in and spend a heck of a lot of money for these first generation sets this fall is the kind of consumer and early adopter who is going to be relatively educated about consumer electronics devices and the capabilities, the device that he or she is buying.

The education is a challenge, but it's not an insurmountable challenge. Selling a digital television set is going to be easier than selling a personal computer. You don't have to boot it up, you don't have to install software. It's still a TV, you plug it in and turn it on and it works, but we are working very aggressively with manufacturers and with broadcasters and retailers to make sure that message gets out.

MR. THOMPSON: I'm curious in the audience, by a show of hands, how many of the broadcasters have started putting together internally some sort of an education campaign for DTV for their viewers? Any of you? One, two, three, just a handful of stations.

Just from somebody who has been in the industry awhile, I urge you to start thinking about this because you will get those calls as I'm sure the NBC affiliate in Washington started getting those calls like my wife that said oh boy, I get to see digital TV. Let's start thinking about these issues. How do I respond to the viewers that want and demand that digital television that I've read about in the local paper? Robert I don't know if some of your stations are facing that dilemma now.

MR. NILES: We are concerned about how the viewer perceives the ability to receive our signal. We're going to use our own on-air product to tell them about it on NTSC, and I hope they'll go out and look at the receivers. We are doing some co-operative arrangements with retailers to try and get programming into the stores at times when the people are there instead of just in the on hours when we have it on the air. If we only do a Disney movie on Sunday night, that doesn't help the retailer sell television sets during the week. So we're trying to help with ways to help them show their product and get some sales going.

It's also important as part of that effort that we somehow or other get viewers accustomed to going back to installing antennas. I think that's a very important part of the issue that's going to have to be resolved. Whatever happens with the cable issues, there is still going to be a need for outside antennas. I think when people pay the kind of money that we've been talking and hearing about how much these receivers will be costing, having an antenna and having it installed professionally is really not a big deal.

MR. THOMPSON: That's a good point, and I want to come to that in a moment.

MR. PETRICONE: That was actually just the point I wanted to make. In fact, CEMA has a committee. It's literally the Antenna Committee and aptly named, and it's going back over all the old territory that you did 50 years ago when you first had to figure out how to get the signal to a home that was on the edge of or sometimes oriented wrongly towards the broadcast tower. This particular program actually lists the broadcast stations in a given market, and it maps them on two levels of map at the moment which eventually will be able to zoom in on the detail where your own house is. It allows you in the retail environment to find where you're located and through a color code connect the type of antenna that would most likely work best for you with the signal situation that you're likely to find at the time you buy.

This is no easier than it ever was in the past with NTSC, and in some respects Bob's alluding to a tougher challenge because of the nature of the digital signal.

MR. PETRICONE: When you sell those first sets, I think that that retailer is out there making sure you can get the signal even before you ship the set to your house especially if you're buying a gigantic set. As Joel Brinkley says in this morning's New York Times, "You can't even get it downstairs or in the house."

MR. FANNON: Wasn't that what Panasonic said?

MR. PETRICONE: It was not only what Panasonic said, but Panasonic is the only one that's actually selling sets at the moment. So as soon as we rack those numbers up, we'll let you know how it's going -- but they are well beyond the hundreds already, and I assure you we actually have a backlog already from about 18 cities that are selling.

MR. THOMPSON: Good! You raise another question that we've talked about on the periphery. As we transition to this digital world of digital format I'm curiou...how soon before analog becomes passe and all of a sudden we've got companies out here that have to have a product of differentiation? Is that really going to be an important point for them as they sell advertising time?

MR. PETRICONE: Yes, that's an interesting question. Right now the TV that you all are broadcasting-- it's World War II technology. It's era technology. In the history of television, except for color, picture quality essentially was what picture quality was and the world today is very different. Right now what you see is this ferocious competition by a number of media for customers, customers' eyeballs. It's this fight for the eyeballs. You've got broadcasters, you've got cable, you've got DSS which has made a commitment to digital, you've got pre-recorded media which is soon going to be primarily DVD which is digital. You've got computers, where the computer industry is very interested in providing video content with a TVPC and again is going to be digital video.

The extent you don't go to digital is an interesting question because there have been some in the cable industry that have talked about a certain reluctance in making the investment that you need to make in order to show through your cable system digital television. Everybody else is showing digital and providing these opportunities, these capabilities and this incredible picture quality to the viewer, and if you decide not to do it, you could very quickly find yourself the AM radio of home entertainment!

I think there is going to be a lot of market pressure to give consumers the option, at least, of having the best technology in their homes available.

MR. THOMPSON: What kind of reaction are consumers having overall? Peter and Bob I know you both are involved in product demonstrations.

MR. NILES: Yes.

MR. THOMPSON: What's the reaction out there of consumers when they see and hear this experience for those of you that haven't seen it?

MR. NILES: All the reports that I've seen would indicate that they are very excited. It gets to be a problem when you start trying to say how excited in terms of how much are you going to pay for that box. Then the numbers might change a little bit, but I think if the prices are right, it will be a very exciting product and it will move.

MR. FANNON: That's always been our experience, and we've done an awful lot of demos including just a week ago today down at the South Street Seaport here in the City with a live CBS signal. But it was displayed on five different displays, the 56-inch rear screen projector that Panasonic always sells, a couple of direct view sets which are coming on the market next year in our case that is the CRT sets, and a flat-screen plasma display. There was considerable interest on the part of thousands of consumers who after a little press thing in the morning, spent the next eight hours looking over the displays and asking questions.

That's the reaction we've had at all the stores when things have gone on sale. It's the reaction we've had at all the demos in and around sports, movies, special events and the like. I personally think that enthusiasm will grow and, in effect, will be enhanced by the improvements that are coming in television displays. What's the picture quality different in effect and how enticing is it. The better the display, in effect, the better the picture looks. The reverse of that is woe unto those who over-compress or screw up the picture because I assure you a bad picture will look terrible on a really good display.

In our company's case we are so committed to investing in better displays that within three years, in fact starting with the end of next calendar year in this country, we will introduce a full thousand line HDTV flat-screen, plasma display largely for the higher end market to be sure. We think about three years after that that price point will be less than what current projection displays are selling for because of mass marketing.

MR. PETRICONE: I'm just curious of the people out in the audience, how many have actually seen digital television or HDTV. We can sit here and we can talk about the speed bumps, and the compatibility issues, and the challenges that are going to be faced, and the price, but the picture is outstanding! When we show it to the public, we've done as Jonathan knows a number of demos, the response is generally overwhelming. We'll sit people down for a demo session and show them Titanic or Lawrence of Arabia and at the end people say all right well I want to buy that set. How much is it? We'd say well sir it's a demonstration model and it's going to be on sale at some point this fall.

Then they'll say no, no, no. I see that and that's working. How much is that set?

That's the kind of reaction we get. When Dell Stereo Video put Peter's televisions on sale in San Diego, there was a line outside the store. It looked like the line around a Russian bank it just kept on going and going.

MR. THOMPSON: I always liked working with Michael. He can turn a phrase better than anybody in my staff!

MR. PETRICONE: No, but there is just an enormous amount of public curiosity out there, and a lot of people when they see it, they're going to want it.

MR. THOMPSON: Let me ask you, we've all kind of fixated on one part of high definition television and that's the video experience. I think it was George Lucas who said when I go to the movies, audio is 50% of the experience. How can we convey that, and how can these folks convey that to their customers that that's an equally important element in all of this? We do have some speed bumps, as you point out Michael, in the audio experience. Robert, I don't know if you have any thoughts on that.

MR. NILES: Well I think the retailers have got a real challenge in how they're going to display the product. I don't know how you can talk about the audio experience without demonstrating it. There's certainly a lot of product available to demonstrate it if you have the right setup in the viewing experience. It may seem a little strange, but from a technical standpoint it's more challenging at this point in time than getting the picture out there. It is the most difficult in-house in the broadcast point on the part of this whole transition, the audio.

MR. THOMPSON: It's kind of the crazy Aunt Mary in the closet out there --

MR. NILES: Yes.

MR. THOMPSON: -- that no one wants to talk about.

MR. NILES: Well unfortunately standards haven't been completed, and as we got our first OB encoders last week and no decoders. They arrived yesterday. Now we can see if it really does work.

MR. THOMPSON: Peter, I know that at Panasonic, you've ridden the home theater wave.

MR. FANNON: Right.

MR. THOMPSON: I think that the thing that home theater has done is it's kind of re-energized audio --

MR. FANNON: Yes.

MR. THOMPSON: -- Everybody in this room has had the same speakers and amplifier since the dark ages. How is it at Panasonic?

MR. FANNON: We literally provide home theater kiosks to dealers. That's one way of bumping SONY off the floor, but it's also a way in which you can present an entirely new experience in those place which traditionally, not the high-end retailers, that have to show the full value of the product. I utterly agree with Jonathan's view that the audio is half the sell.

In addition, in our first products we actually include a minimum of two and usually all three of the surround sound technologies just to be sure that when you get it whether it's over the air with dolby or through pre-packaged media with DSS or DTS, that you can use any or all of them. Pretty soon, the back of the television set, that real estate has got more plugs on it than you wanted to know about. The good news is those who are buying them now get the choice. They're confident in what they buy, and they realize that it's going to be a durable product for many years.

MR. THOMPSON: It's going to change plug-and-play definition. When I was with CEMA, and I told broadcasters and retailers this that there is an opportunity here for broadcasters and retailers because they literally have the same customers for a lot of cases. The viewers are the customers that are going to buy those sets. How important is that over the next few weeks, actually months and years ahead?

MR. PETRICONE: It's very important as far as generating public awareness. As Robert said, it's a critical partnership because among other things you want to make sure that retailers are getting your digital TV picture out during the weekends and afternoons.

MR. PETRICONE: When people are in the showroom buying the sets, by showing Disney on Sunday nights is terrific, but that's not helping to promote the product-at least initially.

I'd like to bring this back for a quick second, because I see we're running out of time, on what this is going to mean to your advertisers. People analogize this whole thing to the transition from black and white to color because they think it's the closest thing we've got. What it's actually more like is the transition from the horse and buggy to the car because not only did the mode of transportation change, but it had all these corollary effects that nobody could predict at the time. That led to an interstate highway system, it led to the growth of suburbs, it led to all these very fundamental changes in how people lives. Digital television in providing this pipeline to the home, this high bandwidth pipeline is going to do that especially from an advertising perspective. Again the picture is going to be terrific, and the audio is going to be great, but you're also going to have this interactive capability. You're going to be able to view one of your advertiser's ads and, if you want, get more information on the product, or see where the product sold, or you know even purchase it then and there.

The opportunities for creative use of advertising are going to be just tremendous. Some advertisers are already pioneering ads in HDTV. I know Procter & Gamble has been very aggressive, and they've done a number of ads for Tide and then you know those clothes really look clean.

MR. THOMPSON: Their term for white.

MR. PETRICONE: Yes, but you know again there are going to be some terrific advertising opportunities. Even early on, the first year nationally we may sell 30,000 sets, but from an advertiser's perspective those 30,000 are a captive pre-determined audience of affluent, high-income consumers and even a small audience like that is an audience that advertiser's are going to want to reach. I know BMW is very interested in advertising in digital television because they see a correlation between your early adopters of DTV and purchase potential.

MR. THOMPSON: That raises a good question for these folks--do you really know who your customers are?

MR. PETRICONE: Yes.

MR. THOMPSON: When you're thinking about this transition, know the statistics of the viewers of the set, the buyers of the sets, the viewers, and the products that they are likely to buy because those are your potential customers. You need to know what they're buying and what their capabilities are.

With the little bit of time we have left, I want to bring up that dreaded "C" word, cable. I know that there's a raging debate amongst many in the policy world about must carry and what's going to happen. Should must carry be legislated to make certain of the cable industry which I've got to remind everybody has 65% of the marketplace? They're pretty ubiquitous. Should it be legislated? Should they have to play by the same rules that terrestrial broadcast has had to play by?

MR. PETRICONE: We think yes. This is an important issue...this is a big deal. As Jonathan said, you do have 65% of homes receiving their primary video signal through cable. To extent that there is some certainty in the marketplace about cable passing through this digital signal, I think it will certainly promote a quicker more effective transition. Both Congress and the FCC have specifically said they want the fastest possible transition.

Certainly I believe that cable should be required to pass through this digital signal. Now luckily most cable systems are adding capacity and converting to digital cable systems. With that capacity they can carry additional channels. The market incentives are pushing in the right direction. Certainly broadcasters are going digital. Some DSS providers such as Direct TV and USSB have made very aggressive commitments to show digital television because they see this a way to vault over the cable competitors.

To the extent the cable lags behind on this, they're really risking their market share. The market share they're risking is their most affluent group of consumers. Because of that, many cable companies such as Time Warner have committed to showing DTV and HDTV and giving their consumers an opportunity to have the highest quality video that's out there. I think the market is certainly going to push them in that direction whether they want to go there or not.

MR. THOMPSON: Peter, do you have anything more to add on to that?

MR. FANNON: The government has actually taken some other steps that would hopefully give consumers a real choice as the shift to digital occurs. Key among them back in July was a rule that says over time, and the not too distant future, the consumers will be able to buy at retail their cable set-top boxes. There's a little give and take on both the date and in some cases the desire of cable operators to also be able to offer them for sale in some sort of competitive way. It's seen as a mechanism to promote cable compatibility because the sooner you have to sell a box in New York that will work in California, the clearer it is that you have to make standards to make things compatible and inter-connectable.

From the point of view of the consumer there's a lot underway that's promoting, interoperability even while the media themselves remain incredibly competitive. I'm not holding my breath that we'll see cable boxes at retail next year.

MR. THOMPSON: Peter, tell me something--do you think the government is finished with digital television and this regulation? I mean the spectrum's out there. Have they begun to wash their hands or are they rolling up their sleeves and looking to get re-involved for job satisfaction?

MR. FANNON: I expect a lot of policymakers wish they were finished with it all. The Congress has basically said we're not going to switch off conventional television until 85% of the homes in a given market have digital receiving capability. That means they're at least going to keep an eye on the transition as it's been laid out. In addition, the Congress has turned to the expert agency, the FCC first and foremost, to set cable compatibility rules and to ensure that media competition isn't hindered.It's promoted even the traditional transition as it's being in the telefony world, et cetera. Overall, the government has a huge stake on behalf of all of us, and Bob alluded to it at the outset, in effect being able to turn off conventional television at some reasonable time not just helps on the cost and operating side for broadcasters, but getting the spectrum back to be reused for other things. This whole shift to digital and it's inherent related efficiencies makes it possible for the Feds to get back something on the order of 30% of the spectrum that was earlier allocated for NTSC alone. The can be either auctioned, or sold, or leased, or whatever to television or any other new services that fit the spectrum. It will balance the budget some people say. We also get to be VHS broadcasters again hopefully some day in the future.

MR. PETRICONE: Just to make it clear, the government has a role in ensuring that the transition goes quickly and smoothly for the consumer. The government has a role in ensuring that if your stations show a high resolution picture and it's sent through a cable wire that the cable company doesn't take it and compress it down to a lower resolution and that's what the consumer winds up seeing. To make sure that if you guys put out sirloin steak, then the cable company doesn't take your signal and make it come out as hamburger at the other end. For years digital TV has been an issue in Congress that's been kicking around the FCC. Now it's a commercial product, a reality. Certainly government will still have a role, but the center of gravity on this has switched from the halls of Congress and the halls of the FCC to the marketplace where it ought to be and hopefully where it will stay.

MR. THOMPSON: Thank you. We have just a few more minutes left. What I would like to do is open it up and see if there are any questions from the floor. I'm sure there are dozens and dozens of burning questions out there.

MR. THOMPSON: Let me repeat the question for those of you that didn't hear it. How are consumers differentiating standard definition television versus the high definition television? Is that what you're asking? What's the feedback?

MR. NILES: The key to that is the display device. The display devices may not give the best pictures we could make out of an HDTV signal. If you don't have a large display with great resolution and brightness capabilities, it may not give you the kind of display that we hope to see in the not too far distant future from Peter and Michael's companies.

The HDTV display on a small screen will probably look very, very nice, but that's not the future.

MR. FANNON: For the broadcast signal, if it's going in digital code and the code gets there, it means that the picture is presented in the home the same way it left the station—it's clean, no ghosts, no snow, no corruption. Unlike NTSC, many people automatically see a difference. The better news is it actually cleans up their cable system in effect. If you didn't spend a nickel to send the cleanest NTSC on a cable system, for all intents and purposes, much of the digital processing is resilient, to the corruption that occurs in the cable system on NTSC.

Overall many viewers, if not most, will actually see a cleaner picture in standard definition from digital. Viewers reportedly surged in the last couple of years to buying DSS because the picture looked better, but they essentially were saying is it was cleaner. It looked crisper even though it may not have fundamentally been sharper in standard definition.

MR. PETRICONE: Just getting back to the differences among the formats, it's kind of like ice cream. Any ice cream is really good. Then if you get an ice cream like Ben & Jerry's, that's great! Digital television is much the same way. Any DTV is going to look substantially better than what you're looking at now. Most of the sets that are going to be sold in the first year are going to be very large-screen sets because we believe as manufacturers that what's going to motivate consumers to spend money on these expensive first generation models. It's a significant increase, just a huge paradigm shift in picture quality.

Certainly as time goes on, the variety of digital television sets on the market are going to replicate the variety when it comes to price and performance of the analog sets that you see on the market. Some consumers are going to want to pay a premium and have a big set that shows an outstanding picture, and some consumers are going to want to pay a little bit less and get a smaller set where the difference between SDTV and HDTV aren't going to be as obvious.

For the first time ever, different industries and different stations are going to be competing on picture quality. If a given station chooses the multi-cast or shows HDTV, there is a chance that the viewer sitting on the couch is going to look at your station and then hit the buttons and go to your competitor the next button over. That competitor is going to be in HDTV.

MR. THOMPSON: But Michael, don't you think that that has a little bit to do with the programming available?

MR. PETRICONE: Oh it does.

MALE VOICE: Is it really great to see Dan Rather in HDTV versus SDTV?

MR. PETRICONE: No, the beauty of the standard is that it is a flexible standard, and certainly for some applications such as movies or sporting events, HDTV is what you're going to want to show them.

MR. PETRICONE: Then for Dan Rather or your talk show or whatever, obviously the level of resolution isn't going to be as important.

MR. THOMPSON: I think ultimately the marketplace will shift a lot of that and answer that question as to what do we need to have broadcast in SDTV vs HDTV? Maybe we have time for one more question in the back.

MR. TALARRIGO: John Talarrigo from WKBD, UPN50 in Detroit. You started to touch on my question at the end of your last answer that many of our groups haven't made up their mind whether they're going to go multi-channel or whether they're going to go digital TV. You've all made it sound like it's a foregone conclusion it will be digital TV whereas many of the groups I know of are leaning more towards the multi-channel. What makes you think the signal is going to be that great again? Like an example given whether to watch Dan Rather in HDTV or be able to use three other channels to do other things.

MR. FANNON: I can tell you from the experience that I've had there are a lot of broadcasters that I've spoken with in terms of how much advertising can support how much broadcasting. Again, it's a marketplace question. Bob, you may have a different point of view on that, but that's --

MR. NILES: That decision of whether it's going to be multi-hannel or one channel of video is going to change with time. In the initial implementation of digital television stations I don't see anything but one format, one program channel and one format at a station. It is just too complex, there are too many things that are not known about the system, and there's not the right hardware to do all the things that can be done. As the business moves along, I suspect there will be people who will do multi-program screens.

MR. PETRICONE: Again it's a very flexible standard. Stations are going to experiment and see what the marketplace is out there. Most broadcasters that I've talked to had a really difficult time figuring out how to build a viable business model out of multi-casting. There are questions about where do you get the advertising, where do you get that level of content, various licensing issues involving the time shifting. Most broadcasters find that to be a bit complex, at least more complex than showing one high-resolution picture for the time being.

MR. THOMPSON: We're out of time. I want to thank the three panelists. You did a terrific job, and we appreciate your coming.