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Picking Up Steam

The cable industry did its level best to coronate HDTV at its national convention in Chicago in June. A separate HDTV pavilion assembled by CableLabs served as an entry point on the show floor. The pavilion showcased lots of cable HDTV programming on various HDTV sets from leading consumer-electronics manufacturers.

MSOs' speakers beat the drum on HDTV deployments for all to hear — including Federal Communications Commission chairman Michael Powell, who lauded the industry's efforts in getting HDTV deployed in consumer homes.

Indeed, the National Cable & Telecommunications Association says cable operators are offering HDTV service to 55 million TV households, about half of the U.S. population. HDTV service has been launched in 78 of the top 100 TV markets, according to NCTA.

The drive is twofold. Rolling out HDTV helps the cable industry help fulfill Chairman Powell's digital-television transition mandate. For cable, HDTV is good politics. But politics alone isn't driving cable's HDTV aspirations. Both DirecTV and EchoStar are rolling out HD boxes, and it's the high-end, most lucrative consumers who are most willing to buy high-def sets and services. It's a coveted market for both DBS operators and cable systems.

But HDTV penetration is small, numbering in the low millions range. What will change that?

Bruce Leichtman, president of Leichtman Research Group, said the smartest thing multichannel platform providers can do today is zero in on the most likely HDTV candidates: "Concentrate on the most likely customers, the high-end, highly educated, video-centric consumers. Educating everyone doesn't make sense," because only a subset of Americans truly understand HDTV at this early stage.

Leitchman estimates about 5 million homes have TV sets capable of displaying true HDTV signals. LRG estimates there are about 500,000 DBS HD subscribers and perhaps another 500,000 HD set-tops in cable homes. That leaves several million homes with HDTV-capable sets, but which may not have the correct cable or over-the-air equipment to receive HD signals. Many of those customers may think they're getting HD signals, by virtue of owning an HD capable set, when in fact they are not, Leichtman explained.

But at 5 million homes, HDTV is close to an inflection point, Leitchman believes. Consumers are willing, he feels, to pay nominal fees of $10 or less for HDTV tiers or for leasing an HDTV set-top capable of receiving many HD networks. "People are willing to pay that fee today," he said.

As for the cable-DBS showdown, Leitchman says DBS is winning the war at retail today, largely because satellite equipment has been in stores for 10 years. "They have something to offer these stores that cable doesn't necessarily have to offer," he said. "Cable does not have that relationship, but that does not mean cable can't catch up."

Operators Push Ahead

Indeed, Comcast, for instance, has rolled out HDTV to half its customer base, including major-market systems New York, Los Angeles, Chicago, Philadelphia, San Francisco, Boston, Washington, D.C., Detroit, Seattle and Atlanta, with retail being a core part of the marketing push. The MSO expects to have HDTV available to 65% of its footprint by year-end. The company is rapidly rebuilding the systems it purchased from AT&T Broadband, which had only scattered HDTV rollouts.

Comcast does not charge extra for its HDTV content, above and beyond the monthly lease cost for the HDTV set-top. In addition to most local ABC, NBC and PBS affiliates, Comcast carries HBO, Showtime and Comcast SportsNet in HDTV. Last month, it signed a deal to carry ESPN's HD feed. Comcast counts more than 100,000 HDTV subscribers.

Cable's leader to date, however, is Time Warner Cable. The MSO has launched HDTV in all of its 31 divisions and counts more than 120,000 HDTV subscribers. It's averaging about 4,000 new subscribers each week. The MSO is carrying most local broadcast affiliates, HBO and Showtime. This fall, TWC plans to launch Discovery HD Theater, plus In Demand's HDTV channels, which will include selected regional sports programming from Fox Sports Net.

"We're pretty proud of our HDTV numbers," said TWC chief marketing officer Chuck Ellis. "From a competitive standpoint, we have quality and depth of programming."

Cox has launched HDTV in seven of its largest 11 markets, including Las Vegas, Phoenix, northern Virginia, San Diego, Cleveland and Oklahoma City. In Phoenix, Cox has taken the added step of selling a Scientific-Atlanta Inc. HDTV set-top at retail.

Other top MSOs have either partial or near-total HDTV rollouts. Cablevision Systems Corp. has rolled out service in New York. Charter Communications has launched in 20 markets, while Insight Communications has launched in 10 markets, nearly all of its subscriber base.

On the Content Front

While MSOs are partially or fully on the HDTV bandwagon, cable programmers have been more selective in entering the market. Programmers whose content works the best in HDTV — movies, sports and nature — have led the charge.

HBO launched HDTV service in 1999, and most of its content, including its high-profile original series like The Sopranos
and Sex and the City, is shot and shown in HDTV. Showtime followed suit thereafter and was the first network to launch in Dolby Digital surround sound. The majority of its movies are series that are also simulcast in HDTV.

Starz Encore Group will launch two sets of channels in December. One will be a straight 1080i format HDTV service of Starz and Encore films. But Starz chairman John Sie also plans to offer a high-resolution 480i feed for cable operators pressed for bandwidth. It's Sie's contention that consumers cannot readily tell the difference between a 480i and 1080i signal on a decent digital TV set.

Not long after the premium services launched HDTV, Discovery joined the bandwagon. Launched in June 2002, Discovery HD Theater will soon be available on Time Warner Cable systems, following deployments with Cox and Charter.

Discovery Chairman John Hendricks is one of HDTV's leading proponents, and is putting his money where his mouth is by investing $65 million in a five-year project Atlas HD. Atlas HD will create 30 two-hour HDTV documentary specials on countries around the world. It's designed to be the definitive work to capture, for instance, such landmarks as India's Taj Mahal in HD.

In March of this year, ESPN launched ESPN HD, with the opening game of the Major League Baseball season. The network also carried NBA and NHL playoff games this summer and is offering both college and NFL football this fall.

HDNet, founded by billionaire Mark Cuban, is offering entertainment, sports and movies across several HDTV channels, and has picked up a number of affiliate deals, including Charter and Insight. In addition to older TV series and movies, HDNet has the rights to Major League Soccer. It has also launched a weekly concert HD series.

The early influx of HDTV content has been supplemented by a few other programmers. Bravo HD+ launched in July. In Demand is set to launch a HDTV channel this month, featuring both movies and general entertainment fare. In addition, regional sports networks — Madison Square Garden Network, Comcast SportsNet and Fox Sports Net — are offering games in HD.

NBC is looking at offering substantial amounts of 2004 summer Olympics programming in HDTV across its broadcast and cable networks.

Other Nets Don't Jump In

But other high-profile cable networks — including TNT, TBS, Lifetime, USA, MTV and Nickelodeon — have remained on the sidelines, save for selected sporting events like the NBA All Star Game or the U.S. Open.

Executives inside some of cable's general-entertainment networks are waiting for an economic model to arrive for HDTV that makes sense for them. Except for networks that rely on Hollywood movies (which can be converted to HD), high-def is a tricky business for other networks.

There is a substantial cost to shoot or convert content to HDTV for some programmers who don't necessarily believe their programming might look that much better in HD (think "talking heads" in a news show).

Cable operators don't appear willing to pay that much extra for HDTV content, under the theory they are already paying to carry that network, and HDTV is just an equipment upgrade. That makes it difficult for programmers to invest millions of dollars in HDTV production when there is no discernible return on investment.

Still, programmers may not want to wait too long. "It reminds me of the days of new-product tier launches," Leitchman said. "The programmers need to get in now because that capacity may not be there in the future. ESPN and Discovery were ahead of the game, and I think they were pretty smart to get that capacity. This is not unlimited capacity."

It is easier for non-public companies, like Discovery, to make the spending commitment than perhaps a public company, Leitchman said. "The ones that should be there are the high-end networks and most of them are getting there," he added. He feels that with the 10 or so cable networks doing HDTV, plus what the broadcasters offer, there is enough HDTV content to entice consumers.