The Nerds And Hollywood Vs. The Boob Tube Crowd

For the Federal Communications Commission, it started as a technology debate about how to handle the transition to digital television, with its crisp images and increased program capacity. But suddenly, the FCC finds itself caught in a titanic struggle that's pitting broadcasters and TV manufacturers against Silicon Valley and Hollywood honchos such as Bill Gates and Steven Spielberg.

After nine years of study, the FCC hoped to complete a dual mission by yearend, to issue a new digital transmission standard and award new airwave space to broadcasters. But a belated lobbying blitz by Silicon Valley threatens to sink the agency's plans. At stake is a market potentially worth billions for the next-generation TV--a "smart box" that is part personal computer, part entertainment device. Some computer designers fear the FCC ruling could tie their feet as they race for a chunk of that market. "It delays the time when there will be natural competition between the TV and PC industries," argues Microsoft Senior Vice-President Craig Mundie.

The key issue is how signals are received. TVs use an older "interlace" scanning, while PCs operate on a higher-quality "progressive" scanning. Eventually, all broadcasts will probably use the progressive method. But the proposed FCC standard--influenced by foreign TV makers--would let broadcasters beam programs by either means. The TV folks say this is a flexible approach. But computer critics gripe they will have to install costly equipment in PCs to handle interlace. "It's like Protestants and Catholics in Northern Ireland arguing religion," says former FCC Chairman Richard E. Wiley, head of an FCC panel that oversaw development of the standard. "You won't get agreement."

For broadcasters, who have been aligned with TV makers, the primary objective is to get the FCC to allot the new airwave space as soon as possible. The broadcasters expect to get the new spectrum for free so they can transmit their programs in both digital and current analog formats. But they could have leftover room on the spectrum to offer new shows or other lucrative services. GOP Presidential nominee Bob Dole wants broadcasters to pay billions for the airwaves. The broadcasters are pressing for an FCC ruling before Election Day in case underdog Dole becomes President.

SCRAMBLING. The politically powerful broadcasters are backed by Republican and Democratic leaders in Congress, who are urging FCC Chairman Reed Hundt to move ahead on the plan. But Hundt wants the market--not the FCC--to set a standard. He sympathizes with Silicon Valley and has added a Microsoft Corp. executive to the committee reviewing the standard. In July, he warned Microsoft that the White House seemed to be siding with the TV makers. That triggered some high-tech lobbying, including a phone call from Microsoft Chairman Gates to Commerce Secretary Mickey Kantor.

Hollywood officials have also joined the Gates crowd. In June, DreamWorks SKG co-founder Spielberg arranged for Vice-President Al Gore to meet with movie execs, who favor the progressive standard on artistic grounds.

The 11th-hour outcry has the Administration scrambling. Kantor's team recently met with the feuding parties to seek a compromise. One possibility is to set a deadline for moving to the progressive system favored by Silicon Valley. But neither side budged.

That raises the prospect of no decision until after the election. Sweating broadcasters may conclude they're better off dealing with Gates now than betting that Dole won't win the White House this fall.

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