Almost four months ago to the day, on July 27th, we ran a story about DTV pioneer USDTV filing for Chapter 7 protection (liquidation) under US bankruptcy laws. We now learn NexGen Telecom LLC - backed by parent company NexGen Resources Group - has taken control of the defunct company’s assets in a reported $1M cash deal (Deseret Morning News, Salt Lake City).

Steve Sechrist
Senior Analyst and Editor
Projection Monthly

That’s not a bad deal for the USDTV assets that were listed back in July as being worth around $10M. Ten cents on the dollar is in keeping with the buy-low, sell-high mantra of investment companies like NexGen, owners of mostly energy resource assets, a railroad and high-end real estate development properties.

The news is good for the 9000 or so loyal subscribers who kept the service through the financial difficulties. That number is down from a peak subscriber base of around 16,000 in the four markets the company currently serves: Salt Lake City, Dallas, Albuquerque and Las Vegas.

What makes USDTV unique is the challenge it potentially poses to traditional cable and satellite pay-TV services. Unlike the cable/satellite duopoly-pricing model that packages literally hundreds of unwanted TV channels in a no-choice set of overpriced silver, gold and platinum options, the USDTV model breaks the price mold and offers a select set of family programs for $19.99.

The company can do this by leveraging what USDTV CEO Steve Lindsley calls the local TV stations’ ‘digital spectrum windfall.’ This windfall came from the FCC-mandated DTV transition, which requires each station to fund an expensive build-out that gives it enough bandwidth to deliver its main programming in HD quality digital, plus enough space left over for three additional channels. USDTV’s business model is to lease this excess capacity in local markets and deliver its programming using over-the-air DTV signals (MPEG-4) sent to a digital set-top-box.

Bottom line, consumers can now get 35 cable channels - without the cable - in a high quality MPEG-4 signal without the duopoly pricing. As an example, compare USDTV’s $19.95 to Comcast’s standard cable package at $46.60. The proposition is also a win for local broadcasters, who get a revenue stream by leasing unused capacity.

So why is it taking so long for this business model to flourish? Good question, especially in light of fact that just 10 months prior to the Chapter 7 filing, USDTV secured a $26M investment from major broadcasters Fox Television, McGraw-Hill Broadcasting, Hearst-Argyle TV, and LIN TV, a group that controls 71 television stations in mostly big and mid-sized markets. This was a deal that appeared to be so rich in synergies that major players thought it was a good bet.

Our take: USDTV offers consumers an excellent alternative to the cable/satellite duopoly-pricing model that forces unwanted programming on customers at ever-increasing prices. Until this pay-TV duopoly is broken consumers will remain underserved, with limited choices and decreasing value.

But fear not. Just as cable and satellite won the technology battle over broadcast TV a generation ago, new technologies such as USDTV’s wireless-cable delivery and IPTV solutions like ITVN.com will eventually win out over these entrenched fiefdoms. Or, at the very least, they will force new pricing models and a la carte programming options to the increasingly unruly masses.