COMPANY TOWN : Digital Delivery : Distributors of TV Commercials and Shows Are Going High-Tech

Hand delivery to one’s doorstep may be fine for pizzas and the mail, but it could soon become a thing of the past for television commercials and syndicated programs.

Companies that specialize in distributing commercial spots and prerecorded TV shows have relied for years on the decidedly low-tech method of making thousands of copies on videotape and shipping them to television stations via couriers such as Federal Express and United Parcel Service.

But the largest firms in the highly fragmented television distribution industry say they plan to start making use of digital satellites and fiber-optic networks this year in order to provide higher quality and faster service at lower cost.

“Working in the digital domain is far more efficient than working in the analog world,” said Ted Henry, vice president of sales and marketing for Cycle-Sat, the largest distribution company, which is based in Forrest City, Iowa.

Analysts estimate that a start-to-finish digital network could be 80% cheaper to operate than today’s labor-intensive system that requires copying, shipping and storing programs on expensive tape.

“Without a doubt, the future is heading toward digital,” said Kemp Fuller Jr., managing director of LT Lawrence & Co. in New York. “It is going to dramatically reduce the cost of distribution versus a ‘dub-and-dump’ program. It’s the most logical way of doing it.”

The move toward digital transmission may create new advertising opportunities as shipping 20 commercials becomes as simple as shipping and playing one, those in the business say. It is already forcing the industry’s predominantly small firms to consolidate in order to shoulder the cost of converting to new digital equipment.

Some companies use analog satellites to beam commercials to television stations and cable system operators, but they are slower and less precise than the digital satellites that are poised to become a staple of the industry. Fiber-optic networks are also being used, although that accounts for only a small portion of the traffic. Today, the bulk of commercials and syndicated programs are still delivered by private couriers.

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“Our industry pays $15 million a year in shipping with companies like Federal Express and UPS,” said Robert Lautz, president and chief executive of IndeNet, a Los Angeles-based distributor.

Lautz said that is three to five times what it will cost IndeNet to build a digital network linking 2,400 television stations and cable operators through the Galaxy IV satellite operated by Hughes Network Systems.

IndeNet’s plan calls for outfitting 400 of the stations it already serves--representing 75% of the company’s business--with equipment to receive digital satellite transmissions by the end of the year. IndeNet will pay to install $8,100 worth of equipment--including an 18-inch satellite dish--in each station, and another $1.1 million to build a central processing facility in Chicago at the offices of its Mediatech subsidiary, the company that distributes “The Oprah Winfrey Show” and “Siskel & Ebert.”

Once a commercial spot or TV program is beamed into a station, it would be stored on a computer file server instead of on videotape, which degrades with use. When a specific spot or show is needed, it can be retrieved on the computer in a fraction of the time it take to fetch a tape, stick it in the correct machine and then put it away again, Lautz said.

Cycle-Sat, a division of motor home maker Winnebago Industries, plans to start its own digital distribution network this summer when General Electric Co. launches another satellite this summer, Henry said. Cycle-Sat has been distributing commercials directly to television stations via analog satellite for a decade, but that does not relay data as quickly or clearly, and the transmissions must be recorded on videotape once they reach the stations.

Once the faster digital satellite is up and running, Cycle-Sat plans to distribute hourlong syndicated programs and infomercials as well as shorter commercials. Digital compression technology can transmit data to the 600 stations served by Cycle-Sat faster than its current satellite, and the signal from the new digital satellite will be 50% more powerful, Henry said.

VDI and Dubs Inc., two large Los Angeles-based distributors, are using fiber-optic networks to move into digital distribution. By the end of the year, VDI hopes to transmit 70% of its commercials via its fledgling fiber-optic network, Broadcast One, said Eric Bershon, VDI’s executive vice president and general manager. That would be a major switch for the company, which today relies on a conventional dub-and-ship operation for 65% of its business, he said.

Broadcast One will allow VDI to deliver commercials almost instantaneously to roughly 100 television stations and 75 cable systems that are connected to a fiber-optic network. That will mean more advertising business for television, Bershon said. For example, the network makes it possible for the promoters of the acclaimed movie “Leaving Las Vegas” to distribute new commercials touting the film’s four Golden Globe nominations on the same day they were announced.

The digital networks will also give advertisers a chance to target their messages to smaller geographical areas--a la direct mail--because it will be just as easy to distribute 10 commercials as it is to distribute one, IndeNet’s Lautz said. That will also draw new advertisers into television by making it cheaper to buy commercial time, he said.

Henry said the industry’s conversion to digital delivery is triggering consolidation in the industry. IndeNet, for example, bought distributors Mediatech and Los Angeles-based Starcom Television Services, while Cycle-Sat purchased Tape Film Inc. of New York. Both companies say they plan to make additional acquisitions this year.

“It’s much easier to spread the cost of a $5-million network over a $60-million base than a $10-million-a-year base,” Lautz said.

While few doubt the digital revolution is coming, many expect it will take 10 years or longer for the revolution to reach stations in the smallest markets. “Some people say they can’t afford to switch, but I think they can’t afford not to,” Lautz said.