USDTV LANDS IN CHAPTER 7 BANKRUPTCY

If you want to receive Lifetime, Fox News and ESPN, you're probably going to have to do it the old fashioned way—through your local cable or satellite TV provider.

U.S. Digital Television, the pioneering company that offered those and other popular cable networks to subscribers via digital broadcast spectrum, is on the edge of extinction, having filed for bankruptcy late last week.

Confirming industry reports, CEO Steve Lindsley confirmed today that USDTV is in Chapter 7 bankruptcy, which usually means the end of a company and quick dissolution of its assets.

But, Lindsley said, the service is still on the air and that he and other managers are in "serious discussions” with the bankruptcy trustee to permit the continuation of the service so that the assets can be sold.

What's more, he said, "we're involved with a third-party investment group to participate” in acquiring the assets.

"The acquirer of the assets is interested in the robust nature of the video service and they are already in the double play of Internet and voice,” Lindsley said. "To be able add video to their package is appealing to them.”

Lindsley's comments were carefully worded and he declined to answer questions beyond the comments.

USDTV has struggled since its 2003 debut, but got a second financial win last year when five TV station groups—Fox, Hearst-Argyle, LIN TV, McGraw-Hill and Morgan Murphy Stations—and Telcom DTV agreed to invest $26 million into the venture.

Its latest offering included 30 channels of basic cable for $19.95 a month and Starz for an extra $6.95 a month. Subscribers also had to pay $24.95 for the "start up kit” that included use of the proprietary set-top box that receives the digital broadcasts and displays them on conventional analog TVs.

USDTV leased digital capacity from broadcasters in each of the markets it targeted and marketed the service primarily through Wal-Mart.

Lindsley founded USDTV and still believes in the over-the-air cable concept. "We were well on our way to proving the business model.”

According to Lindsley, USDTV has 16,000 subscribers in four markets—Dallas; Salt Lake City; Albuquerque, N.M., and Las Vegas. And since a relaunch last December, the company has fielded more than 65,000 calls for service and inquiries in those markets, he said.

Lindsley conceded that USDTV had problems typical of all startups. USDTV has had trouble with a new billing system and with third parties who had been hired to install the USDTV system in subscriber homes.

But while such problems may have contributed to higher than expected churn of 4%, they were not critical in USDTV undoing, Lindsley said. Overall, he said, customer satisfaction was good and three quarters of subscribers had recommended or said they would recommend the service to friends and family.

"The overarching reason USDTV filed for bankruptcy is that the industry did not support the initiative,” Lindsley said. "I would say the industry is paralyzed by fear of stepping out and competing with cable. I don't think the industry right now is prepared to do it.”