As any historian knows, revolutions usually brew for years before they cause full-scale upheaval. In the case of high-definition programming, Time Warner Cable’s 1998 agreement to carry CBS’ high-definition and digital signals was akin to the Boston Tea Party—a galvanizing event that brought the seeds of revolution home to the masses. Time Warner Cable, with 70% of its cable plant at that time upgraded to digital (now digital and HD are available throughout virtually its entire footprint), was staking its claim on the future of television. Under the terms of the agreement with CBS’ owned-and-operated stations, Time Warner agreed to carry CBS’ high-definition programming as well as any other digital signals CBS wanted to multicast; the MSO also promised CBS affiliates owned by other broadcasting groups the same terms. Not only was the deal a first of its kind, it transcended the tension between the cable and broadcast industries over proposed digital must-carry rules, which would have forced cable operators to carry broadcasters’ digital signals, rather than negotiate for them. At the time, Joseph Collins, then chairman and CEO of Time Warner Cable, told Mediaweek, "HDTV will revolutionize the viewing experience, and we at Time Warner are convinced that this agreement will serve as a model for the rest of the industry." One can almost hear the patriotic music ringing out in the background. Five and a half years later, Collins has been proved right—and wrong. His characterization of HDTV is correct: Like color TV, once a viewer experiences it, there’s no turning back. HDTV, although still in its infancy, is taking off rapidly. Collins may have been overly optimistic, however, in opining that the Time Warner/CBS agreement would become a model for others. While HD is available in at least one cable system in 99 out of the top 100 markets and 155 out of the country’s 210 TV markets—according the NCTA, HDTV is available to over 84 million households, up from 37 million in January 2003—by no means has every cable operator cut deals to receive the HD signals of every broadcaster. In the top 10 markets, nearly every big network affiliate’s HD signal is carried by cable, but HD carriage agreements still need to be hammered out in smaller markets where network affiliates are owned by independent broadcast groups without cable networks or other assets to leverage. As of late February, Comcast was missing one or more local network stations from its HD lineups in 31 markets, from WSB-TV (ABC) in Atlanta and KIRO-TV (CBS) in Seattle, two Cox Television-owned stations, to Albuquerque, N.M., where it is does not offer HD signals from the NBC and CBS affiliates, to central Pennsylvania, where it has yet to close a deal to carry the HD signal of the ABC affiliate. (In some markets, such as Tucson, Ariz., where Comcast has yet to offer HD signals from any of the Big Three networks, its HD launch is very recent.) Comcast declined to comment on ongoing negotiations. Cox Television did not return calls seeking comment for this story. Even Time Warner Cable—the HD veteran among the big operators—still has deals to complete with local broadcasters. In a very few cases, the local network affiliate does not yet have the capability to deliver an HD signal. Time Warner offers CBS HD in 26 of 29 of its divisions where CBS delivers an HD signal (TWC has 31 divisions), ABC HD in 26 of its 31 divisions and NBC HD in 22 of the 30 of its divisions where an NBC affiliate is delivering the signal. Negotiations are ongoing in markets where the operator is missing an affiliate’s signal. "No one has been as aggressive as we have," says Time Warner Cable spokesman Keith Cocozza. "If we could get them to give us the programming, we’d light them up tomorrow." Who’s the Fall Guy? Bruce Leichtman, president and principal analyst of Leichtman Research Group, says he is not worried about the missing HD signals. "It’s so early that it’s very, very minor," he says. "Even though there are 8 million [HD] sets in people’s homes, that still is a vast minority of people." Clearly, if someone buys a set to watch a big marquee event in HD and then can’t, they will be discouraged, he says. He does not see the lineup holes slowing demand for HD, but he does see them hurting the networks. "If three of the four networks are in HD and one is not, guess who loses—it’s the one who’s not there," he adds. Dan Brenner, SVP, law and regulatory policy, for the NCTA, says this could be "the golden moment" for cable and broadcast—two groups that have historically battled over regulatory issues. "We want to carry their programming, broadcasters want their programming seen by these customers," Brenner says. While it’s true that both the cable operator and the broadcaster benefit by having the HD signal on air, even that benefit "becomes a little bit of a bargaining-table issue—who is really getting the benefit of the bargain, who owes money to whom, who is benefiting whom," Brenner says. "Cable has taken the view that HD carriage at no cost is reasonable given that while we’re getting the benefit of the signal, the broadcasters are also getting the benefit of being carried into homes that they might not otherwise be seen in." What exactly is streamed over the bandwidth allocated for HD is at the heart of the issue that crops up the most when talking to cable operators about HD carriage negotiations. That troubling issue: multicasting. There are few things anyone at the bargaining table dislikes more than an all-or-nothing deal, yet, from cable’s perspective, that’s what is being proposed in many cases. Operators want to know more about digital channels that may be in the development stage. Mystery Channels "Our sticking point to date has been uncertainty about what the programming would be on these digital signals," says Cox senior counsel Alysia Long. "The HD simulcast of their existing signal is a no-brainer. We want to carry that, we know what it is, we think it will drive the HD product. It’s the other stuff, the unknown of what will be on the signal, that has been sort of at the heart of our negotiations. A lot of the broadcasters have been reluctant to do a deal even for their HD simulcast without guaranteed carriage of that unknown product." The number of potential digital channels that may be offered in such cases distresses operators looking to use that bandwidth for other services. "In systems where there are 23 to 30 off-airs, it’s just impossible," says Patty McCaskill, SVP, programming, Cebridge Connections. "It means that we would have to drop [other] programming." In many cases, independent broadcasters want the same deal that was given to their larger brethren—deals that may have involved multicasting as well as programming deals for other cable networks. "We will consider other multicast content," McCaskill says, "if and only if it is consistent with our larger interests and of value to our customers. Bottom line: We believe carriage of either the HD signal or the multicast [if any] should not be discussed in the context of retransmission consent—which was designed for analog broadcast signals. Instead, discussions of digital signals should take place in the context of fair-market negotiations, based on value to our customers and the level of interest they may have in new content." Once broadcasters figure out what is going to be placed on the multicast digital signals, she wants to negotiate on an individual basis and, if there is value, then bring them onto a system’s lineup. In some cases, previous three-year retransmission deals didn’t provide for the HD signal, and reopening those deals is "always difficult," Brenner notes, which could explain the lack of a certain affiliate’s signal. Very small operators have a different problem: Although eager to offer HD, in some cases they are being forced to provide those signals before they are technically or economically ready to do so. "You don’t have to convince our members about the value of high-definition television," says Matt Polka, president of the American Cable Association. "The problem is when you have a national media corporation from New York or Los Angeles forcing this carriage onto a smaller system with maybe 1,000 or 2,000 or fewer subscribers. That’s where the tension occurs, because these companies aren’t ready in the marketplace to do it yet." HD is inextricably intertwined with retransmission or must-carry negotiations, but has become a bigger issue under must-carry. Current FCC regulations stipulate that if a station proceeds under must-carry, then that means just one signal is carried—either analog or digital. (The National Association of Broadcasters is lobbying the FCC to adopt a carriage rule during the digital transition that would allow broadcasters to elect must-carry for the analog or digital signal and retransmission consent for the other, or retransmission consent for both the analog and digital channels. The NCTA objected strongly to the proposal, calling it the equivalent of dual must-carry.) Retransmission consent involves far broader negotiations where anything can be thrown on the table. Digital must-carry is a sore point, Leichtman says, "and therein lies where this can get really heated." As far as broadcasters are concerned, they are angry that cable hasn’t yet agreed to carry all their digital signals. Of the 1,175 broadcast stations now broadcasting in digital, just about a third (382) are being carried by cable. There’s also somewhat of a chicken-and-egg syndrome going on—broadcasters are holding back on mapping out plans for new channels because they are unsure about cable carriage in various markets. Meanwhile, cable operators are reluctant to grant carriage until they can determine whether the content might be valuable to customers. "I can recall only two instances of seeing something of what they are looking at for multicasting," says Cox’s Long. It’s Later Than You Think During negotiations, the independent broadcasting groups are out there on an island by themselves, Leichtman notes. But he questions whether leverage of other assets that typically come up in big media negotiations is necessary. "The question is, what’s the smart thing to do? And the smart thing to do is get out there," he says. "HD is actually moving very fast—much faster than a year ago and a lot faster than other technologies that get talked up." At Cebridge, which launched HD in one market and plans another launch soon, McCaskill tries to treat all broadcasters equally. "I’m having productive conversations with some broadcasters who see the value that we are bringing by agreeing to carry their high-definition signal, and they are not asking for anything else except being carried at parity with other high-definition programming," she says. "We’re saying [to the broadcasters]: `We are not making any money off of you, but we are giving you spectrum; and we think that’s of value.’" Not all of Cebridge’s negotiations have been a breeze; the MSO is still in talks with Belo affiliate KHOU-TV in Kingwood, Texas, to gain HD carriage of its CBS signal. After finishing up some larger negotiations with the owned-and-operated stations, Cox has refined its position on multicasting, says Long. Cox will carry the "unknown," she says, "as long as it doesn’t fall into certain categories." Those categories include data services, programming guides, video on demand and PPV, all of which might compete with similar services offered on the same system. Polka says the best way to work a deal is to get local. "Rather than have a donnybrook over retransmission consent concerning HD carriage, we would like to work with the local broadcaster, sit down with him, tell him what our rollout schedule is, find out what their rollout schedule is and work together. Because they are dealing with some of the same capital concerns as we are." Independent broadcasters and smaller cable systems are operating under similar circumstances, he adds. "They don’t have leverage, nor do we in dealing with the large media conglomerates. The independent broadcasters want to work out deals to obtain carriage, and consequently they are willing to come to us and negotiate in a fair and reasonable way, as opposed to what we see from the large media conglomerates dictating contracts." In the end, it might come down to bargaining-table savvy. While it’s not clear how long it will take for every operator to offer every local HD signal, it is clear that progress has been made. It’s also clear that it’s not enough. In a few years there will be well over 20 million HDTV sets in consumers’ homes. What happens if they can’t watch the Super Bowl or the Final Four on their expensive set? The two camps need to work together to erase confusion in consumer’s minds about why one channel is available in HD—an already complex service—but another is not.