High-Definition TV: Government or Market Choice?

The technology for HDTV exists today, and it is even in operation in Japan. Unfortunately, there isn’t an industry standard for American HDTV. In accordance with conventional wisdom on broadcasting, the Federal Communications Commission has to approve a standard. There is no shortage of ideas—the FCC has about 20 proposals under consideration.

The problem is one of trade-offs between the higher quality offered by HDTV and compatibility with the existing National Television System Committee (NTSC) technical standards adopted by the FCC in 1941. A TV channel occupies a certain bandwidth, a “space” in the spectrum of broadcast frequencies, If HDTV signals could occupy more than one channel’s bandwidth, the task of sending a high-quality picture would be easier; but then fewer stations could operate in a given geographic area without interfering with one another.

Ideally, a broadcast signal would occupy the same bandwidth as an existing TV channel, would be received by existing TV sets, and would contain extra information that the new HDTV sets could receive. But trying to do this brings technology up against certain limits. According to a mathematical principle called Shannon’s Law, for a given bandwidth and a given ratio of signal strength to interfering noise, there is a maximum amount of information that can be transmitted in a given time. Whether it’s possible to meet the physical limitations and provide full compatibility with existing TV is a hotly debated question. If it isn’t possible, the signal either has to use more than one channel or give up full compatibility with today’s broadcasting.

Complex trade-offs like these are involved in most technological standards. It’s easy to suppose that the best way to deal with these trade-offs is to let the government decide for everyone and guarantee that different companies won’t produce equipment that meets different and incompatible specifications.

But the market is capable of resolving competition among proposed standards; it produces results that are acceptable to consumers. When the government sets the standards, there is no reason to suppose that its choices will reflect what buy-crs actually want.

As an example of how the market works, consider the case of VCR’s. Initially, there were two standards, the Beta and VHS systems. Today, VIIS is the dear winner, not by anyone’s deere, e, but by the people’s choice to buy it. The Beta purchasers may appear to be the victims of inefficient competition; but I still have a Beta recorder in my living room, and mail-order catalogues still offer a wide selection of Beta tapes. No doubt these will dwindle away in time, but by then I’ll be ready to buy a next-generation VIIS recorder. Although other formats have appeared from time to time, they have succumbed to the buyers’ judgment that the improvements they offered weren’t worth the investment in new equipment.

VHS isn’t necessarily the optimal solution; many people consider Beta tapes superior. But most people couldn’t tell the difference; VHS was satisfactory, and it was better positioned in the market, so it became the de facto standard.

Satisfying the Consumer

Commercially successful standards like VHS satisfy the consumer; government-mandated standards may satisfy only the wishes of the people who devise them. An example of the latter is the computer programming language Ada, which is the standard for Defense Department computer work. Not surprisingly, it’s one of the most complicated computer languages ever devised; it has provisions for doing virtually anything, often in several ways. Any commercial implementation must pass rigorous tests for compatibility before it can be called “Ada.” Outside of government-related work, Ada gets little use; it’s too complicated to learn and too costly in computer resources.

The proposals before the FCC will put an initial premium of $500 to $1,500 on an HDTV set compared to a conventional set, even though studies have indicated that most people who are shown both images don’t consider the improvement worth more than $100. The costs of new technologies decrease with time only if they find a market to begin with. The new broadcasting equipment for HDTV also will be expensive; a large potential audience will be needed to justify its cost. If the FCC selects a system that no one is willing to pay for, it will go nowhere.

Government approval of a standard doesn’t automatically lead to market success, as is illustrated by the FCC’s early experience with color television. In 1950, the FCC approved the CBS system for color TV, which involved a color wheel rotating in synchronization with successive frames of the picture. Not only was this method incompatible with existing black-and-white sets, but it also added a major mechanical component to the TV sets of the day. Because the CBS sys-tem was a commercial failure, the FCC reversed itself in 1953 and approved RCA’s system, which is the one used today. When the government sets standards, it isn’t likely to resist political favoritism. There are currently about 20 major television manufacturers in the United States; of these, Zenith is the only one that is domestically owned. Not surprisingly, Zenith’s proposal is one of the leading candidates—perhaps because it really is one of the best, though it’s hard to avoid the impression that its political position plays a major role.

Because many people in the U.S. electronics industry see HDTV as a chance to make a comeback against the Japanese, this will lead government organizations to favor home-grown technology, whether it’s better or not. Commerce Secretary Robert Mosbacher has said, “I believe that we should insist that United States firms closely benefit from the [HDTV] effort.”

The ideal implicit in the FCC’s approach is a single standard that would serve the country for the next 30 years or so. Fixed standards offer some significant economic advantages: people don’t have to replace obsolete equipment or get multiple sets to receive incompatible formats. The equipment, however, becomes obsolescent, and nothing can replace it. Today’s National Television System Committee broadcasting standard is in fact ancient technology, established in the early days of television. If computers had suffered the same fate, we’d still be using room-sized machines with less power than today’s five-pound portables.

It may be that the market would have taken the same route. Perhaps the established base of TV sets would have precluded significant changes in technology until a major leap in quality became possible. On the other hand, an evolutionary market might have resulted in TV sets today that would provide movie-theater quality for the same price that we actually have now.

Letting the Market Decide

What path might HDTV follow, if it were left to the choices of the market? Its first appearance wouldn’t be on the broadcast market, but on a market like cable where there is a greater emphasis on quality and a closer link between the viewer and the broadcaster. Viewers could be guaranteed a full schedule of HDTV programming, and could be directly billed for premium-quality broadcasting. Cable networks would have an incentive to make the necessary capital investment. We could expect to see cable companies offer discounts for advance subscriptions, enabling them to raise capital, and to determine whether the market really is there.

Of course, the cable companies may choose a standard unsuitable for broadcast TV. Since the developers of the technology would want the widest possible market, this isn’t very likely, but it could happen. Although this would be a disaster for lovers of homogeneity, the investors whose financial future is at stake would have judged that the over-regulated, overcrowded, commercial-laden world of broadcast television is a dying medium, without enough of a future to justify holding cable technology back to its level.

A non-broadcast path to HDTV could open up remarkable possibilities. Fairly soon, fiber optics—fine strands of transparent material that carry light, instead of electricity, through cables—may replace metal wire for non-broadcast communications. If this happens, tremendous amounts of bandwidth will be available, and true digital television would become possible. Finding bandwidth for signals sent over the airwaves would become as obsolete an exercise as finding a hitching post. But if the FCC holds non-broad-cast TV back to the level of the broadcast medium, this won’t happen.

A market decision represents the sum of the choices of many people, each having limited knowledge and a stake in the outcome. A governmental decision represents the choices of a few people who have limited knowledge and a stake only in the politics of what they decide. Of the two modes of decision-making, the market will give people what they want.