Is Over-the-Air Television Broadcasting Really Obsolete?

Writing in the New York Times today, Richard Thaler had this to say:

Here's a list of national domestic priorities, in no particular order: Stimulate the economy, improve health care, offer fast Internet connections to all of our schools, foster development of advanced technology. Oh, and let’s not forget, we’d better do something about the budget deficit.

Now, suppose that there were a way to deal effectively with all of those things at once, without hurting anyone... I know that this sounds like the second coming of voodoo economics, but bear with me. This proposal involves no magical thinking, just good common sense: By simply reallocating the way we use the radio spectrum now devoted to over-the-air television broadcasting, we can create a bonanza for the government, stimulate the economy and advance all of the other goals listed above. Really.

What Thaler means by "reallocating the way we use the radio spectrum" is to take frequencies currently in use for over-the-air television broadcasting and auction them off for other uses:

Because we can’t create additional spectrum, we must make better use of the existing space. And the target that looks most promising in this regard is the spectrum used for over-the-air television broadcasts... over-the-air broadcasts are becoming a nearly obsolete technology. Already, 91 percent of American households get their television via cable or satellite. So we are using all of this beachfront property to serve a small and shrinking segment of the population.

Alex Tabarrok (linking to the Thaler piece) concurs:

Despite the fact that 91 percent of American households get their television via cable or satellite huge chunks of radio-spectrum are locked up in the dead technology of over-the-air television.

Maybe so. But the transition to digital over-the-air broadcasting has dramatically improved the picture quality that one can obtain with an amplified indoor antenna (even in Manhattan) and has caused many people (myself included) to switch to over-the-air broadcasts for the first time. The first thing I noticed when I did so was a significant improvement in picture quality relative to high-definition cable. Randy Hoffner of TV technology explains why:

Broadcast HDTV delivers by far the best-quality HD pictures, because cable and satellite bit-starve the digital pictures in order to decrease the bandwidth they occupy.

And people are beginning to notice. Here's a Los Angeles Times report from a couple of months ago: 

In Los Angeles, more than 30 over-the-air channels are available in English, including stations featuring movies, dramas and children's programs. Major networks including ABC, CBS and NBC beam out daytime and prime-time shows -- and professional sports -- in resolution with clarity that may shock viewers expecting the hazy broadcast signals they remember from childhood.

"Everyone who does it says the picture quality is actually better than what you're getting through cable," said Patricia McDonough, a senior vice president at Nielsen.

As more viewers tune in to the newly reenergized possibilities of broadcast television, manufacturers say they can't make antennas fast enough.

"Our sales are going through the roof," said Richard Schneider, president of Antennas Direct, a St. Louis manufacturer of the devices.

Schneider said that sales had nearly tripled since the switch-over, and that he had to add a new assembly line in his factory to meet the demand. The company produces nearly 100,000 antennas every month, thousands of which are sold in the Los Angeles area, he said.

Viewers are also finding they can combine broadcast television with the growing array of movie and TV programming available online.

Of course, it may still be the case that the most efficient use of scarce radio frequencies lies elsewhere, as Thaler contends, though it's not obvious to me that installing and maintaining a network of cables is the most cost-effective way to deliver television programming to households. In any case, until there is a change in FCC policy, the "small and shrinking segment of the population" that relies on over-the-air broadcasts is unlikely to continue shrinking for much longer.

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Update (3/2). Robin Hanson and I go back and forth on the issue in the comments section of this post. He makes the point that assigning frequencies to the highest bidders would allow this scarce resource to be put to its highest value uses. This would be true if we had complete markets, but since broadcasters cannot contract with individual recipients of over-the-air television signals, we have a missing market. The absence of a property right in the signal prevents broadcasters from capturing any of the consumers’ surplus, and makes their auction bids uninformative with respect to overall efficiency.

We could just ignore this problem and assign frequencies to those who do have the ability to contract individually with their customers. But it’s not obvious to me that this is a better outcome than trying to complete the missing market – for instance by taxing receivers and allowing broadcasters some use of frequencies at a price that is below the market clearing bid.

The main point of my post was simply that the over-the-air product is now very good -- potentially much better than cable -- and possibly even delivered more cost-effectively. When economists with the professional stature of Richard Thaler make claims about trillion dollar free lunches, it's tempting to jump instantly on the bandwagon. But his basic premise -- that over-the-air broadcasting is "nearly obsolete" -- is not supported by the facts; the technology is alive, improved, and gaining in popularity. That alone doesn't mean it's worth preserving, but the choice is not as obvious as his article would lead one to believe.

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Update (3/7). Cable Television obsolescence watch:

ABC's parent company switched off its signal to Cablevision's 3.1 million customers in New York at midnight Saturday in a dispute over payments that escalated just hours before the start of the Academy Awards.

Further down in the same article:

The signal can still be pulled from the air for free with an antenna and a new TV or digital converter box.

Some of those who do this will notice an improvement in picture quality. They may not give up on cable just yet because the range of over-the-air programming is still quite limited, but they might start to wonder why they are paying so much for an inferior product.