Your Tax Dollars at Work, Part 174

Cashing In on TV Switch

By SHIRA OVIDE October 11, 2007; Page B5

As the era of aluminum-wrapped rabbit ears nears an end in the U.S., RCA and Zenith are planning a comeback.

Two of television's oldest brands are expected to play a major role as TV converts to digital-only broadcasts in early 2009.

The switch away from traditional analog signals may be the most significant TV change since the introduction of color. Tens of millions of Americans need an upgrade to go digital. To ease the burden, the government set aside $1.5 billion to subsidize devices that make old TVs digital-capable. The converter boxes are slated to hit retail shelves early next year.

The potential market is sizable because more than 69 million TV sets, by some estimates, rely on rabbit ears or rooftop antennas. Without the converter boxes, those TV sets will be useless after Feb. 17, 2009, the mandated end to more than 70 years of U.S. analog transmissions. The majority of Americans -- who have TV sets connected to cable, satellite or other pay services -- will be unaffected, as will people with high-definition or other TVs with built-in digital tuners.

The digital changeover could sow confusion because the converter boxes have to be able to work with TVs spanning decades. Technical glitches could frustrate converter-box buyers, many of whom are expected to be older or not tech-savvy.

To keep old-fashioned sets going, starting Jan. 1, each U.S. household will be eligible for two subsidized converter boxes. Before a $40 coupon, each government-approved gadget is expected to retail for $50 to $70. A division of the Commerce Department is responsible for running the coupon program.

The digital converter boxes essentially are a stripped-down cousin of the cable set-top box. About the size of a VHS videotape, the converters connect the TV set and an existing antenna to help analog sets decode digital signals.

Years of design are packed into a small package. The converter boxes are required to have features including a remote control, parent-control settings and closed captioning. Some manufacturers are putting in on-screen program guides similar to ones provided by cable and satellite operators.

The government expects to make 22.5 million coupons available during an initial phase, with at least an additional 11.25 million expected to be issued later. If 34 million units sell, it would be double the number of high-definition TV sets expected to be sold this year.

"The market is sizable, so somebody is going to make out pretty well," said Afzaal Akhtar, a partner with IBB Consulting, a media and technology consulting firm.

Among those hoping to cash in are LG Electronics Inc. of South Korea and Thomson SA of France. Both companies are busy manufacturing converter boxes and have decided to hearken back to iconic TV names: Zenith and RCA. For LG, which bought Zenith nearly a decade ago, "it made sense to capitalize on this well-known American brand," said John Taylor, vice president for public affairs and communications for LG Electronics USA.

Still, converter-box makers are taking a risk. The boxes aren't expected to be high-margin products, and the bulk of them are likely to be sold in just a few months before and after the February 2009 digital switchover.