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Who's Got the Best HD?

As the holiday shopping season kicks into high gear and Americans add high-definition television sets to their wish lists, viewers will be awash in promotions and ads from MSOs cranking up their HD marketing machines.

As the marketing war heated up earlier this year, DirecTV and Comcast sued each other over advertising that claimed superior picture quality. Comcast was eventually allowed to continue using its ads based on a Frank A. Magid Associates study, while DirecTV was forced to pull its survey-based spots. In October, DirecTV filed a suit against Cox Communications that made claims referencing the Magid study, which was based on Comcast's systems.

Distributors argue over who is offering more HD programming, but DirecTV is spending millions to remind viewers of its 100-plus channel target by year's end. DirecTV's total advertising spending through the first half of the year, at $131.5 million, was on pace to match the 2006 total of $261 million, according to TNS Media.

“If there is a marketing tactic out there we don't employ, let me know and we'll give it a try,” says Jon Gieselman, DirecTV's senior vice president of advertising.

During the summer, DirecTV launched a new satellite, DirecTV 10, to provide extra capacity. In October, it added more than 40 new HD channels, pushing its total to 72, beyond what its competitors were offering. DirecTV's channel tally now stands at 84.“We intentionally held back a significant number of channels until we had critical mass,” says Gieselman of October's launch.

The week of Oct. 15, DirecTV heralded the launch by flooding The Wall Street Journal and USA Today with advertising, ramping up its television ads with 30-, 15- and 5-second spots and launching a blimp with an HD camera system and a giant LED screen. “The idea was to really blast the marketplace,” Gieselman says.

The campaign is meant to have a broad appeal, to those consumers watching in HD and to those who aren't. While they want to attract people who have not yet taken the dive into high-def, Gieselman says they also want to tap that portion of the population who own HD sets but aren't yet hooked up to an HD source. According to Leichtman Research, that number is around 47% of HD set owners.

DirecTV is running a mix of commercials on both high-definition and standard-definition channels and also integrating with programming that Gieselman says “reinforces our brand message.” DirecTV has maintained a presence around sports, such as NFL football and baseball's World Series, but has also struck sponsorship deals with network shows including AMC's Mad Men and USA's Burn Notice.

Is the marketing push paying off for DirecTV? The company's third-quarter operating results provided some insight. DirecTV doesn't disclose how many new customers specifically take its HD package, but in the three months ended Sept. 30, more than 50% of the 1 million new subscribers signed up for advanced services, which include HD and DVR. That is up from 28% in the same quarter a year earlier. DirecTV has a total of 16.5 million subscribers.

Cable operators counter DirecTV's marketing blitz on high-definition superiority with an edge of their own. Cable has the ability to offer video-on-demand, and lots of it. Stressing choices where DirecTV stresses channels, big cable companies are stoking their VOD libraries with more high-definition content. Most cable systems carry an average of 25 linear high-definition channels, but operators are moving to increase their capacity to deliver more channels through plant upgrades and implementation of switched digital video, which sends a signal down the pipe only when a customer requests it, freeing up bandwidth.

For example, Comcast, the nation's largest cable company, carries 250 high-definition offerings on-demand. The second-largest operator, Time Warner Cable, carries between 130 and 200, depending on the system.

VOD has been an Achilles' heel for satellite providers because they lack the interactive signal needed to deliver content on demand. For cable operators, having a VOD platform allows them to expand HD offerings while their capacity to deliver linear HD channels is constrained.

Cable companies are seeing their fair share of HD customers. According to Derek Harrar, Comcast's senior VP and general manager of video services, “Demand for HD is insatiable.” Harrar says much of the demand for its HD product is derived from existing customer upgrades. Of Comcast's digital cable subscribers, 40% were taking advanced services at the end of the third quarter compared to 33% in the same period a year ago.

In an effort to appeal to cost-conscious consumers, some cable companies, such as Time Warner Cable and Cablevision Systems, also emphasize that they don't charge extra for an HD tier. For the holiday season, Time Warner Cable is utilizing resources at its disposal by running tie-in television spots for its “Home of the Free HD” campaign with the Warner Bros. film Fred Claus.

The universe of total HD subscribers is around 16 million, and growing in part because the HD battle is not confined to cable and satellite. A new challenger in the arena is Verizon Communications' FiOS TV. In October, Verizon announced FiOS will match DirecTV's claim to carry 150 HD channels by the end of 2008. A spring 2008 launch will bring its HD channel count to more than 60, but the company is adding programming and presently carries 23 HD channels.

The FiOS network is in the early stages of its rollout, but its fiber to the premises (FTTP) system will have the capacity to deliver a deep lineup of linear channels as well as programs on-demand. Verizon expects to have 1,000 HD on-demand titles by the end of next year.