Will People Pay Up For HDTV? Cable, Satellite Firms Bet Maybe

[Gregg Lengling]

BY REINHARDT KRAUSE

INVESTOR'S BUSINESS DAILY

Most Americans already pay to get TV via cable or satellite. But if they want cable and satellite firms to provide ultrasharp "high-definition" programs, they'll have to ante up even more.

The Disneys, Discoverys and others that provide new HD content increasingly are seeking more money from cable and satellite TV firms.

"We definitely understand that there's been a change," said Stephanie Campbell, a senior vice president at satellite firm DirecTV. "The companies providing HD content are going to want to be paid for it. So we'll probably have to charge for it."

The good news: people will get more HD content to watch. The bad news: HDTV is for affluent consumers, and it may stay that way for some time.

Costs for HD-ready TV sets still hover around $1,500. Even so, some industry players are upbeat.

"The price drops of digital TVs, along with competition between cable and satellite to retain their best customers, will drive the adoption," said Mark Cuban.

Cuban owns the Dallas Mavericks basketball team and co-founded HDNet, which airs an HD mix of sports, films and concerts.

Five Times Sharper

Touted as the next big thing in TV for more than 15 years, HDTV uses digital signals to deliver ultrasharp pictures. HD pictures are five times sharper than what we see today.

Cable and satellite companies are key players because more than 85% of U.S. households get pay TV. Cable once dominated, but satellite companies now have about 20% of the market.

Consumers pony up anywhere from $40 to $70 a month for digital cable and satellite TV services. It's unclear if cable and satellite firms will throw in HD as part of the packages or charge more.

"That's one of the marketing challenges," said Bruce Leichtman, president of researcher LRG.

Cable and satellite firms distribute content provided by others. So far, there hasn't been much HD content.

HD Sports

But more is on the way. ESPN, owned by Disney, (DIS) launched an HD sports channel on March 30. Five or so HD channels are available today via cable or satellite. Some are provided at no extra charge.

As more channels get shown in HD format, though, providers like Disney will want more money.

Comcast Corp., (CMCSK) the biggest cable firm, doesn't intend to make customers pay extra for HD channels, says Dave Watson, executive vice president of marketing. But it charges a $4 monthly rental fee for HD-ready set-top boxes.

"We are concerned about doing too much a la carte pricing," he said. "We want to simplify the HD offering, embed it in digital plans. That way, we think, demand will increase."

Many company strategies, though, are in flux.

Keith Coccazza, a Time Warner Cable (AOL) spokesman, says his firm is "investigating offering an HD-programming tier for some incremental price." Time Warner plans trials in 60 to 90 days, he says.

HD channels are available to 93% of Time Warner's 10.9 million customers. But just 76,000 homes lease HD-ready set-top boxes.

In many cases, cable and satellite firms provide the HD versions of Time Warner's HBO and Showtime for free as part of a package.

Littleton, Colo.-based EchoStar, a satellite service, offers movie buffs an HD pay-per-view channel. It also charges $7.99 monthly for Discovery's HD channel.

DirecTV, part of General Motors' Hughes Electronics subsidiary, offers HDNet to subscribers for free. In January, DirecTV launched an HD pay-per-view movie channel.

Cable firm Charter Communications (CHTR) in February rolled out a $10 monthly HD rate plan that includes Discovery, HDNet and movies. (COX)

To get HDTV, customers must first buy an HD-ready TV. Then they must purchase digital TV service for about $45 a month. Premium channels or extra set-top boxes hike monthly charges. HD channel fees can lift bills more.

HD content could be another marketing tool for cable firms, says Martin Franks, an executive vice president at Viacom Inc.'s CBS network. (VIA)

"Two of cable's business problems are churn and competition from satellite," he said. "What I've pointed out is that our HD programming could be compelling programming that reduces churn."

CBS was the first commercial network to provide substantial HD content. It broadcasts nearly all its prime-time and sports programs in high definition.

EchoStar (DISH) offers a national version of CBS in HD format. To get it, EchoStar subscribers must buy a programming package that adds $4.99 to the monthly tab.

Despite the EchoStar deal, CBS still wants to partner with cable, Franks says. Cable has an edge over satellite firms in providing local stations in HD format.

One problem for both sectors is limits on network capacity.

Neither EchoStar nor DirecTV beams any local channel in HD format. Each carries 50 to 60 local channels using digital signals, but not HD.

Under federal rules, cable firms must carry all local channels in analog format. That includes stations owned by the big four broadcast networks and affiliates.

Cable firms say their networks don't have enough bandwidth to carry all local channels in both formats. And the local stations don't have to end analog broadcasts until 2006 or later.

One holdup to wider local carriage is that the networks, in particular CBS, are seeking fees for HD content, says Robert Sachs, president of the National Cable & Telecommunications Association.

Comcast, for example, doesn't have a deal with Viacom.

But competition from satellite may pressure cable firms.

In May, EchoStar plans to launch a new satellite. It will give EchoStar more bandwidth to deliver local channels and HD content.

'Advantage Satellite'

"As a general statement, HDTV will be advantage satellite," Charlie Ergen, EchoStar's chairman and chief executive, told analysts in an earnings conference call.

Ergen says EchoStar will focus on bringing HD fare to markets where cable hasn't upgraded. He says EchoStar will carry national HD channels, such as HBO, Discovery or ESPN.

Similar to its CBS deal, EchoStar plans to air national channels of the major networks in HD format, but not all local stations.

In early 2001, satellite firms surprised cable rivals by partnering with consumer electronics companies on HDTV products.

DirecTV plans to roll out an HD digital video recorder later this year by teaming up with Tivo Inc. (TIVO) The device would let subscribers pause and rewind HD movies.

EchoStar plans to soon roll out a low-cost, HD monitor that works with its satellite dishes, says SG Cowen analyst Tom Watts.

Five million digital sets are in use. Most people, though, bought them to watch wide-screen movies in DVD format, analysts say.

As digital TV prices fall to about $1,000, analysts say, more consumers will take interest.