Digital Upstart
Steve Lindsley says his own family is a prime example of why his experiment in digital television, U.S. Digital Television, can succeed in the heated competition for TV eyeballs. Concerns about racy programming, not to mention bills that can exceed $100 a month, have kept digital cable and satellite service barred from his home, says the USDTV chief executive. Meanwhile, new hardware finally enabled his own broadcast service to leap a nearby ridge and bring more than 30 channels of DVD-quality video to his six anxious kids.
Lindsley grew up in Salt Lake City, where he was a walk-on quarterback for Brigham Young University, and now lives in Alpine, Utah, tucked into a mountain valley south of the city. "It was virtually uncoverable for broadcast television," says Lindsley, 44. Now his family enjoys the city's broadcast TV, plus 12 cable channels that include ESPN, Discovery, and HGTV--for $20 a month, and all through an antenna.
USDTV is a bold effort to find a niche in the crowded market for selling television programming. At a time when cable, satellite, and now even phone companies offer hundreds of channels, Lindsley's start-up is slipping in with a family-friendly, inexpensive slice of a few dozen. It's going after what he calls "cable nevers and analog onlys"--that is, the millions of Americans who have never bought cable or buy only the lower-priced, analog service.
To reach them, USDTV is piggybacking on new gear installed at broadcast stations, which by federal fiat have spent billions of dollars converting their signals from analog to digital. The best-known result is high-definition television, with its superfine images and rich surround sound. Less known is the stations' leftover spectrum. Digital is so much more efficient that even if a station is broadcasting in HDTV, it has room to transmit at least one other channel of programming.
Make a deal. The challenge is figuring out how to make money from "multicasting" on that bandwidth. Among the networks, NBC last year launched a 24-hour local weather service, ABC is planning a similar venture, and CBS is putting together an entertainment channel. But many stations are casting about for the best deal, and they're being targeted by upstarts like USDTV and the Tube, a music channel. The Tube is now appearing on the secondary channels of stations owned by Raycom Media and will soon be on Tribune and Sinclair Broadcast stations.
Unlike USDTV, the Tube is aiming at cable systems, which often are contractually bound to carry the second broadcast channels. The Tube's founder is Les Garland, who helped start MTV and VH1 when cable systems were hungry for content. These days, though, getting onto cable systems with a new service is difficult, and Garland says, "Digital broadcasts are a back door for us onto cable."
USDTV, in contrast, is a competitor to cable. By pooling secondary broadcasts from several stations in a market, USDTV delivers a cablelike menu of channels over the air to special set-top boxes. The devices look like a digital cable box but connect to an antenna instead of to a cable or satellite system.
Antenna? Yeah, it's retro in concept but not in execution, says Gerry Kaufhold, an analyst at market researcher InStat. USDTV has been quick to adopt new antennas and the chips inside set-top boxes, which together help it reach more homes than typical broadcast signals. That's crucial, because the business depends on good reception from multiple towers. "They've been gutsy getting out there with this concept," says Kaufhold, who likes USDTV's chances.
Others aren't so sure a new delivery system can make money at $20 a month. Station operators at Gray Television and Nexstar Broadcasting knocked USDTV's plans in a recent meeting with analysts, saying USDTV spent too much to get customers.
USDTV counters that it doesn't cost much to get started in a new market--perhaps $100,000 to add broadcasting gear. The boxes themselves sell for $25 at stores, most notably Wal-Mart, and come with professional installation. Still, the service has rolled into only four markets, with the largest being Dallas. It's a far cry from the 30-market, nationwide rollout that Lindsley predicted for 2004. But last fall, USDTV raised about $25 million in expansion money from six station operators, mostly smaller outfits that might feel threatened by the conversion to digital broadcasting. Large media operators might better exploit new opportunities in digital broadcasting, by developing or buying new programming, said Tuna Amobi, an equity analyst with Standard & Poor's, in a recent report to investors.
Lindsley seems to relish aligning himself with Davids against the media Goliaths, drawing the inevitable analogy to Southwest Airlines and how its low-cost service tapped markets underserved by major airlines. Similarly, the big cable and satellite operators neglect those who don't want high bills, or spicy content, Lindsley says. "Parents feel overwhelmed trying to manage the media coming into homes."
His Mormon upbringing jibes with the sales formula, which doesn't make room for HBO and other sometimes raw channels, says Lindsley, who once ran the Salt Lake City station owned by the Church of Jesus Christ of Latter-day Saints. And he has known adversity before--as BYU's starting quarterback in 1986, he was booed after the once dominant program stumbled. "That," he says, "was great preparation for competing with cable."
AT A GLANCE
U.S. Digital Television leases spectrum from TV stations in a metropolitan area to deliver an average of 30 broadcast and cable channels.
Founded: 2003
CEO: Steve Lindsley
Cost: $25 for a starter kit, $20 for basic service, $7 to add Starz channels
Current markets: Albuquerque, N.M.; Dallas; Las Vegas; Salt Lake City. Announced: Norfolk, Va.
Employees: 109
This story appears in the April 24, 2006 print edition of U.S. News & World Report.