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Raising the Digital Radio Flag

There is no equivalent to the DTV 'broadcast flag' for digital radio, but this could change soon

There is no equivalent to the DTV ‘broadcast flag’ for digital radio, but this could change soon

In the Dec. 15th issue, we considered the broadcast flag and its role in preventing Internet redistribution of content received via digital television broadcasting. FCC rules requiring consumer TV equipment to honor this feature go into effect on July 1, 2005, but no rules yet exist on such a process for digital radio.

As the IBOC format moves into deployment, the industry is still considering whether digital radio will get its own flag. Note that just because first-generation consumer equipment is already on the store shelves does not preclude this, as the DTV model shows. ATSC equipment is now considered to be at its fifth generation, with many thousands of units already in consumers’ hands. These units will not honor the ATSC Broadcast Flag, but neither should flagged content cause them to misbehave (although a few errant ATSC receivers did, requiring a manufacturer’s recall).

The key point here is that even as the IBOC rollout proceeds, the introduction of a broadcast flag for radio could still feasibly occur at any time over the next several years, so long as backward compatibility is assured. If a regime is established, legacy receivers will not observe protection rules, but future equipment will, and that’s better than nothing from the content community’s perspective.

Therefore radio may be in for a long discussion of this topic.

Why radio is different

The distribution environment differs in several important ways between music/audio and movies/TV, however.

By way of review, recall that in the previous column, we considered the unusual confluence of sentiment from TV content, broadcast and consumer electronics interests that led to the DTV flag. To wit, a primary concern of over-the-air (OTA) DTV broadcasters was that they would be increasingly left out of the distribution mix for premium content if they could not assure content owners that adequate protection from Internet redistribution could be offered to programming distributed via DTV broadcast. These broadcasters feared that such content would migrate to the inherently more secure digital cable and satellite services, and OTA broadcast would be left with low-value content only. Thus DTV broadcasters were predisposed to accept (and indeed, initially proposed themselves) such a regulatory regime.

Consider also that part of the Hollywood business process involves the well-known “distribution windows” system, by which cinematic content typically is released first only in theaters, then moves to DVD/VHS (and generally around the same time to PPV/VOD and airline release), followed by pay-TV (HBO, Showtime, etc.), and later to non-pay cable/sat (USA, TNT, Bravo, etc.), then finally to broadcast TV.

None of the above applies to radio distribution, at least not today. High-value audio content (i.e., newly released music and network programming) flows to a single tier of distribution, in which OTA broadcast outlets generally occupy the top spot. New music is made available to all radio broadcasters and record stores at essentially the same time –if anything, broadcast radio occasionally gets a highly anticipated new release a bit earlier than the stores – and network radio content generally has nowhere else to go besides affiliate stations.

So radio broadcasters do not anticipate any imminent threat to their premium content supply, and are thus less likely than TV broadcasters to willingly accept a broadcast flag or any other mandatory content protection on their emerging digital services.

Change of venue

A couple of recent, major developments must be factored into this situation, however.

First, record companies believe that their bottom lines have been dramatically and negatively affected by music file-sharing via peer-to-peer on-line services (such as the original Napster, Grokster, Gnutella, KaZaA, Morpheus and the like). They feel that this problem is rooted in the CD release format’s lack of any effective content protection, allowing easy capture of digital content by users who can then redistribute it in digital form. These record companies – generally represented by their trade organization the Recording Industry Association of America , or RIAA – are therefore wary of any new digital distribution format proceeding without such protection.

Second, consider also that satellite radio and, more recently, legitimate online music distribution, have now entered the audio distribution world. The conditional access (i.e., encryption) intrinsic to such subscription services could create an environment where multiple levels of comfort are provided to content companies, as they already exist in the DTV world. In other words, record companies could feel that distribution of new content via satellite radio or online services was more controlled than OTA digital broadcasting, and therefore prefer the alternative services over OTA stations for premium content distribution.

At present, satellite radio and other alternative distribution media do not hold sufficient market share to make this a particularly viable course, but this, too, could change relatively quickly. Consider that cable and satellite were also once marginal services, but grew to their current ~85 percent penetration within a couple of decades’ time.

In fact, early movement toward this end may have already begun, most notably with the exclusive “pre-release” of U2’s “Vertigo” album on Apple’s iTunes service (and a heavy TV advertising campaign supporting it).

From a legal perspective, broadcasters could challenge record companies from withholding content under the rubric of compulsory license, but digital broadcasting might be carved out of this provision by subsequent rulings. (The simulcast nature of the IBOC system makes the latter a more cumbersome process, however.)

Additionally, the music industry could establish a system of multiple release windows, as in the cinematic world, of which the iTunes example cited above could be a harbinger. Naturally, OTA digital radio, absent any content protection, would occupy the lowest rung on such a ladder.

Clearly this is an argument that will not soon be quieted, and its business ramifications for radio’s digital future may ultimately loom large.